A couple of years ago I explained the role that payment networks have in co-brand credit card deals.
Each deal brings together three parties:
- Co-brand partner, whether an airline, a hotel, or other merchant
- Issuing bank, like Bank of America or US Bank
- Payment network, like Visa
In the case of American Express cards issued by American Express, they’re playing the role of both issuing bank and payment network, which they refer to as a closed loop.
The payment network takes a cut of transactions (merchant processing fee). That amount, the split between the network and the bank, is negotiable. The amount of money available to fund specific rewards and benefits depends on the overall economics of the deal, how willing the payment network is to discount their cut on a given card.
And the payment network has a big seat at the table, and in fact the large US airlines all have exclusive payment network relationships (United with Visa, American with MasterCard, and Delta with American Express).
I spoke at the Airline Information Mega Event in Toronto last week as part of their co-brand credit card track, and hosted their version of shark tank highlighting new product innovations. Monday’s Airline Weekly noted something from one of Visa’s talks in that track,
Visa, presenting last week in Toronto at the Ai Mega Event, said 31 large co-branded credit card deals have come up for renewal in the past two years, many but not all involving airlines.
Of the 31, which account for a total of $125b in annual card spend, 20 brands renewed with the same issuer (i.e., bank) and network (i.e., Visa, MasterCard or American Express).
Seven switched both issuer and network, four switched network but not issuer and none switched issuer but not network.
Every time in the past two years that a co-brand deal switched banks they also switched payment networks.