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Co-branded Cards in Europe and the US - A detailed analysis of co-branded payment cards in Europe and the US. It looks at the potential costs and benefits of co-branding and recent trends in this market. Includes details and commentary on a wide range of co-branding agreements.

Product Code: dmfs1985

Publication Date: 29-Dec-2006

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Overview

Introduction

Co-branding is an increasingly popular option for both card issuers and merchants across Europe and the US. This report provides an overview of the market, examining how the partnerships work, the potential benefits and costs for both parties and trends. It also provides a detailed review of many programs in the market and concludes with a discussion on the future of co-branding.

Scope

· Introduces and discusses different models of co-branding partnerships, explaining the key motivations for entering into co-branding agreements.

· Examines recent trends in co-branding in Europe and the US.

· Several co-branding arrangements are examined in detail, segmented by the construct of the loyalty proposition.

· Provides Datamonitor's Cards and Payments team's view on the outlook for the co-branding by region.

Report Highlights

Through a co-branding relationship, customer acquisition costs can be as little as 15 per cent of what they would be through direct mail or other means. Issuing banks are also increasingly benefiting from the cross-selling opportunities that stem from these relationships.

Despite the obvious advantages of entering into a co-branding agreement, there are many pitfalls that should be avoided by both parties. From the issuer's perspective these include the risk of losing revenue from its existing customers as they switch to the new program. Both parties face reputational risk in the event of a failed program.

As a result of the success of co-branding partnerships in established areas such as airlines and hotels, issuers are now looking to different sectors to gain customers. These opportunities include web based retailers as well as other retail sectors.

Reasons to Purchase

· Discover what makes for a successful co-branding relationship, and the risks associated with them.

· Compare the product offerings of the most interesting and innovative co-branded products on the market.

· Learn Datamonitor's' Cards and Payments Team's assessment of future opportunities in co-branding in Europe and the US.

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INTRODUCTION	9
Who is the target reader?	9
Scope of the briefing	9
How to use this briefing	10
MARKET CONTEXT	11
Introduction	11
Co-branding was first introduced in the US in the 1980s	11
Co-branding brings together the strength of an issuer and merchant partner	11
Co-branded cards are issued in partnership between an issuer and merchant	11
These partnerships leverage the assets and resources of each player to create a strong value proposition, frequently including a loyalty offering	13
On the product side, the key input from the merchant is loyalty	14
Co-branded card programs are formed through either straight partnerships, self issuance or the conversion of a private label portfolio	15
Straight partnerships are the most common form of co-branding	16
Private label conversions are on the increase	16
Self-issued cards are quite uncommon	17
Co-branding offers significant benefits to both parties	17
Issuers benefit from higher spending levels, access to a customer base, lower acquisition costs, cross-selling opportunities and added value in a competitive market	18
Access to the merchant's customer base is the primary benefit	18
Issuers can leverage the merchant's customer base and distribution network	18
Lower acquisition costs compared to mass marketing is strong motivation	19
Co-branding adds value in a competitive market	19
Higher spending levels relative to other payment cards generates additional revenue	19
Co-branding allows issuers to operate on a greater scale	20
The primary benefits for merchants are additional revenue and sales	20
Co-branding can lead to stronger brand attachment and loyalty from customers	21
A deepened relationship with cardholders increases customer loyalty	21
Customer data can be used for marketing purposes	21
The secondary benefit is revenue sharing	21
The potential costs for both partners are considerable	22
The issuer risks losing its own customers and reputation.	22
The merchant risks losing revenue and reputation	22
TRENDS IN CO-BRANDING	24
Due to a combination of competition and the potential benefits, co-branding is growing in importance	24
Intense competition in many markets has forced issuers to look more closely at co-branding partnerships	24
Consumers expect more from their credit cards	25
The proportion of co-branded cards in the market place has grown	26
Co-branded cards are increasing in number relative to the rest of the market in the UK	27
This growth has played a role in the decline of the private label card in this market	27
Co-branding is now prevalent in many merchant sectors, leading issuers to look beyond this "traditional" list	28
The size of new co-branded card schemes has fallen as issuers search for suitable partners	30
Relationships between card issuers and their partners have evolved	30
Merchants are becoming more involved in the distribution of other financial products	31
PRODUCT FOCUS	32
Club models	33
Basic Club models are the simplest form of loyalty program	33
UK - The Jeep MasterCard is a typical automotive co-branded payment card	34
France- The Carrefour Carte pass is a typical department store payment card	36
Advanced Club Programs give cardholders a greater range of benefits	37
Germany - The Porsche Card offers cardholders a wide range of benefits	38
Spain - The Champions league Card allows supporters to access exclusive football based offers	40
Points based models	41
Basic points based programs	42
United States - The Toys "R" us Visa card is aimed at young families	42
UK - The Amazon Card aims to generate loyalty in a price competitive market	44
Advanced points programs	45
Canada - The President's Choice MasterCard is an example of a self-issued card	46
UK - The Tesco Clubcard credit card is attached to one of the UK's largest loyalty programs	49
Multi-retailer programs	51
UK - The Nectar American Express Card is part of the most popular multi-retailer scheme in the UK	52
Germany - The Web.de Barclaycard is part of a web-based multi-retailer program	55
FUTURE FOCUS	57
The market outlook varies by region	57
Co-branding will provide an opportunity for growth in slow growing markets	58
Co-branding will provide product differentiation	58
Competition for merchant partners is likely to increase	59
Co-branding relationships will continue to evolve	59
Co-branding will allow issuers to increase market share in growing markets	59
Co-branding will only occur when it is profitable	60
In the longer term, growing markets will mature	60
However, co-branding will not be the answer for all issuers and merchants	61
The costs are high	61
For issuers, margins will get tighter	61
For merchants, the value of loyalty programs is contentious	62
Both parties face reputational risk	62
Ultimately, there are other ways for issuers and merchants to achieve their aims	62
APPENDIX	64
Research methodology	65
Cards and Payments database	65
Future Readings	66
Datamonitor's custom research capabilities	67
Cards & Payments Team contact details	69
How to contact experts in your industry	70
List of Tables
Table 1: Presidents Choice points awarded by PC Financial Services, 2006	47
Table 2: President's Choice, cinema redemptions, 2006	48
Table 3: Datamonitor's forecast for pay later card numbers across five markets, 2005 - 2010	57
Table 4: The number of co-branded revolving cards in the UK, 2001-2005	64
Table 5: The proportion of co-branded revolving credit cards in the UK, 2001-2005	64
Table 6: The number of co-branded and private label payment cards in the UK, 2001-2005	64
Table 7: Current relevant Datamonitor publications, 2006	66
Table 8: Future relevant Datamonitor publications, 2007	67
List of Figures
Figure 1: Defining card partnership models, 2006	12
Figure 2: Combining brand and expertise in a co-branding relationship, 2006	14
Figure 3: The average co-branded card has twice the average annual spend levels, USA 2004	20
Figure 4: Payment cards offering rewards have increased in popularity, USA, 2004-2005	25
Figure 5: The proportion of co-branded cards being issued has grown, USA, 2003 - 2005	26
Figure 6: The proportion of co-branded cards in the market place has more than doubled, UK, 2001 - 2005	27
Figure 7: In the UK, co-branded cards have tripled in number, whilst private label cards have declined, 2001 - 2005	28
Figure 8: The Travelocity credit card rewards consumers for staying loyal to the brand.	29
Figure 9: Datamonitor's classification of co-branded card loyalty programs	32
Figure 10: The Jeep MasterCard, essential statistics, 2006	34
Figure 11: The Carrefour Carte Pass - essential statistics, 2006	36
Figure 12: The Porsche Card - essential statistics, 2006	38
Figure 13: The Champions League Card, essential statistics 2006	40
Figure 14: Toys "R" Us Visa card - essential statistics, 2006	42
Figure 15: Amazon.co.uk MasterCard - essential statistics, 2006	44
Figure 16: President's Choice MasterCard, essential statistics, 2006	46
Figure 17: Tesco Clubcard credit card, essential statistics, 2006	49
Figure 18: Nectar Credit Card, essential statistics 2006	52
Figure 19: Nectar Card holder can redeem their points for a variety of goods online	54
Figure 20: The Web.de Barclaycard, Essential statistics, 2006	55
Figure 21: Datamonitor's core consulting capabilities	68

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