Both Citibank and Barclaycard will be issuing new American AAdvantage cards as part of a new deal announced today. Back in April I couldn’t predict one bank to win exclusivity over the other and it turns out that was a better prediction than I had realized.
American Continues Its 30 Year Relationship with Citibank
American AAdvantage launched its first credit card with Citibank in 1987. Next year will mark 30 consecutive years that American has had the same co-brand credit card partner.
Incidentally, the first airline co-brand was launched a year earlier by Continental and Marine Midland Bank (now HSBC). But United launched in 1987 as well, and their partner bank is a predecessor to current co-brand issuer Chase.
So both United and American have had essentially 30 year relationships with the same issuing bank.
American is Unique With 2 Bank Issuers
American is in a unique position because it has had two different banks issuing its consumer co-brand credit cards. Hilton does this with Citibank and American Express, however no U.S. airline has more than one bank issuing cards in the US market.
Barclaycard American AAdvantage Cards
US Airways Dividend Miles had cards issued by Barclaycard. They got the co-brand as part of the America West acquisition of US Airways, and when American and US Airways merged they doubled down by buying the ‘back book’ of cards issued by Bank of America from the old pre-merger US Airways.
Just like when US Airways and America West merged, and Bank of America got to keep servicing existing US Airways Dividend Miles accounts but not issue new cards, when American and US Airways merged and Dividend Miles went away Barcalycard got to continue servicing existing accounts but not issue new cards. American’s co-brand partner Citi became the exclusive issuer of new American AAdvantage credit cards.
I have both the Citi Executive AAdvantage Card and the Barclaycard Aviator Silver World Mastercard. Both let me earn 10,000 elite qualifying miles after $40,000 spend in a year (the Barclaycard version lets me earn 5000 qualifying miles at $20,000 and 5000 more at $40,000). I assumed that would be short-lived, as one or the other bank because the exclusive issuer when the current co-brand deal expired. Both would be bidding on the business.
Citi Executive AAdvantage Card Comes with Admirals Club Access
Very Expensive for the Banks
That Barclaycard didn’t sell their portfolio to Citi, and grew the portfolio by buying out BofA, suggested they were in the game for the long term and wanted to bid on the business going forward.
American President Scott Kirby continued to grouse during quarterly earnings calls that Delta, United, and Southwest all had credit cards boosting their year-over-year revenue numbers. Now he has a deal, too.
However it’s presumably not as big a deal as American might have liked. Delta set the bar 18 months ago with a $2 billion a year deal. Since that time Chase renewed Southwest and United (and also British Airways). It appears that neither Citi nor Barclaycard were willing to spend enough to be exclusive issuers, pushing out the other bank.
This also sets the two banks up to compete again in the future. However we could be at the zenith of co-brand credit card deals. We’re seeing erosion in Europe, Australia, and contracts are already building in the expectation of declining value in the Mideast. Interchange fees are likely to decline (and certainly more likely to decline than to rise) as a result of retail pressure, government regulation, and new technology.
These are long term deals, exclusive with Mastercard, and by the time they’re negotiated again the value may well be lower. (The payment network is an integral part in negotiating these deals.)
A Strange Co-Existence Between Two Banks Going Forward
According to American’s press release both Citibank and Barclaycard will be issuing new cards going forward. Although the two banks don’t exactly compete head-to-head for new customers. Instead, they will be dividing up territory.
American has entered into new agreements with both Citi and Barclaycard US. The agreements will allow Citi to continue offering its lineup of cards to new customers through multiple exclusive channels such as digital – including aa.com – mobile, direct mail, and Admirals Club lounges.
The agreements will also allow Barclaycard US, the payments business of Barclays in the United States, to offer its cards to new customers in airports and exclusively during flights beginning in January 2017.
Citibank cards will be on the American Airlines website and in American Airlines lounges. Barclaycard cards will be on American Airlines flights. That’s a strange coexistence.
More Competition Will Be Better for Consumers
We saw tremendous competition during the last months that Barclaycard was offering new US Airways Dividend Miles cards that would become American cards. Bonuses were high. And Citibank ran higher bonuses as well. Two banks competing for the business of AAdvantage members is likely to be good for members.