Co-Branded Credit Card Partnerships: Risks and Rewards

Co-branded credit card partnerships offer revenue growth and customer acquisition opportunities for banks and brands, despite potential financial risks.

### The Lucrative, Risky World of Co-Branded Credit Card Partnerships
* 💳  Co-branded credit card partnerships are a growing trend, making up **62% of the largest US issuers' portfolios** and **a third of general-purpose credit cards in the US in 2021**.
* 🤝  These partnerships involve a bank, a brand (like Amazon or Delta), and a card network (Visa or MasterCard), with the brand **providing rewards** and the bank **issuing the card**.
* 💰  Banks pay brands for rewards offered to customers, with an average of **$279 per new account in 2022**, while brands can make **billions in revenue** from these partnerships.
* 🏦  Wells Fargo's partnership with BILT, a fintech startup, is losing the bank **up to $10 million per month**, highlighting the **risks involved in these deals**.
* 🍎  Apple and Goldman Sachs' partnership for the Apple Credit Card also faced challenges, with Apple proposing to **exit the contract** after Goldman Sachs decided to **leave the consumer lending space**.
* 🛒  Walmart and Capital One ended their exclusive credit card partnership early, with Walmart suing Capital One for allegedly **not meeting certain contract terms**.
* 🔮  Experts predict continued growth in co-branded credit card partnerships, as brands seek **additional revenue streams** and banks aim to attract **high-spending consumers**.
* 💡  Despite the risks, these partnerships remain valuable for banks, as they bring in customers who might not otherwise choose their cards, leading to **increased purchase volume and revenue**.

- [Narrator] As much as $10 million, that's how much Wells Fargo is losing every month thanks to this credit card. - [Presenter] You can finally earn points on rent. - BILT got a very sweet deal, but Wells needed to win. - [Narrator] Despite high-profile failures, these types of credit card partnerships make up 62% of the portfolios of the largest issuers in the US, and experts say the industry will continue to grow. Here's how these complex partnerships work and what some missteps reveal about what's at stake. - A co-branded partnership is one where a bank teams up with a company. It's as broad as that. - [Narrator] Brands that have credit card partnerships run the gamut, from airlines to retailers. - It's any company that is looking to build up loyalty from their existing customers and to pull in new customers. - [Narrator] In return, customers earn rewards,

anything from discounts
to a free hotel night. - For free. Boom. - [Narrator] And the banks
that team up with brands to issue the cards are looking
to cash in on that loyalty. - Ultimately, it's meant to
be a win-win for the bank and for the partner that
they're teaming up with, where they will both see more customers and more revenue from this partnership. - [Narrator] There's also
a third player involved, the card network. - The card networks Visa and
MasterCard basically make money when more volume goes over their networks. Generally speaking,
these brand partnerships bring large numbers of
high-spending consumers. - [Narrator] So how do
these players work together? Take the Amazon Prime Visa credit card. Amazon is the brand in the partnership and users can earn rewards
on its site and elsewhere. Visa is the card network that allows customers to use this card anywhere Visa cards are accepted.

and Chase is the issuing bank. Whatever revenue is
generated from these cards, whether it's just from the way
that the consumer is shopping, to whether they're paying
their balances in full every month or not, to whether they are paying on time or not, that is money that's all up for grabs between the bank and their partner, and they determine how
they're going to split that. Those merchant
partners can also make money every time someone opens a new account. And banks often pay brands
for rewards like Miles offered to customers. Those reward purchases can make up the biggest chunk of payments banks make to their partners. The rewards basically
encourage the consumer to spend even more on that card. In 2022, banks paid merchants an average of $279 for every open account. Delta made nearly $7 billion from its Amex credit
card partnership in 2023. In general, it's been
kind of a race to the top.

if you will, in terms of how
those payments have gone.

- [Narrator] These partnerships
are growing in popularity. In the US, over a third of
general-purpose credit cards were co-branded in 2021. That's 173 million accounts
in the US co-brand industry, and most of them are in the
travel and retail space. But for all the potential upsides
for both brands and banks, some partnerships carry immense risk. Wells Fargo launched
its splashy partnership with BILT, a FinTech startup, in 2022. The BILT credit card promised to... 

- Turn your rent payments
into a dream summer vacation. - [Narrator] That's a rare perk. Most landlords don't
accept credit card payments because of the high fees they would need to pay card companies. With the BILT card, Wells Fargo agreed to
eat much of that cost. - They started going through
this sort of rationale of,

well look, we're going to get access to a lot of young adults. We got tons of card holders
in a short amount of time, and it delivered that like, okay, like Wells is serious about
being in the co-branded space. - [Narrator] But according
to exclusive WSJ reporting, the partnership is losing the bank millions of dollars a month, and Wells Fargo has told BILT it doesn't intend to renew the contract when it expires in 2029 unless the economics are
changed more in its favor. The bank is paying BILT
$200 for every new account. It's also making separate payments every time the card is used to pay rent, which is what the program is focused on. - All of this has resulted in losses, as have the internal projections
that Wells Fargo made as to how consumers would use this card
turned out to be wrong. - [Narrator] And the
bank has stopped bidding on new co-brand programs altogether.

In a comment, Wells Fargo said that co-brands are one modest piece of the company's credit card strategy, and the BILT card is one component. And BILT said it is committed to the partnership, and that any insinuation of either party looking to exit the partnership is inaccurate. Wells Fargo isn't the only bank to make a miscalculation. - We saw an opportunity to transform another fundamental method of payment, and that's the credit card. - [Narrator] Apple and Goldman Sachs announced the Apple Credit Card in 2019 to great fanfare. Within the first few years, balances on the card grew to over $8 billion. But in the fall of 2023, Apple sent a proposal to Goldman Sachs to exit the contract. The proposal came after the bank decided it would leave the consumer lending space. - It comes with a lot of costs and a lot of regulatory oversight, and all of that basically means a lot of expenses.

that resulted in the bank
losing billions of dollars as it tried to become a
massive consumer lender. - [Narrator] Trying to distinguish itself in the consumer lending space, Goldman Sachs accepted
unusual terms from Apple. - One of the risks here is working, especially when it's the big companies. You know, you wanna partner with me and you have to deal with my terms. And if you don't deal with my terms, I'm just gonna go somewhere else. - [Presenter] This is Apple Card, a credit card created
by Apple, not a bank. - [Narrator] For Goldman,
agreeing to Apple's terms like not charging late fees
or selling customer data meant losing valuable income streams. - You know, another risk is
when you have a merchant partner that is insisting on most of the cardholders
getting approved, right? Well, what if a lot of those cardholders have low credit scores and that results in higher
losses for the bank?

- [Narrator] That was a major sticking point in the Goldman Sachs and Apple partnership. Apple and Goldman Sachs declined to comment. - [Presenter] Introducing the Capital One Walmart Rewards Card. - [Narrator] In May, Walmart and Capital One ended their exclusive credit card partnership several years before the contract was slated to end. The decision came after Walmart sued Capital One in 2023, alleging that the bank didn't meet certain terms of the contract. According to people familiar with the matter, Walmart had wanted to renegotiate some terms of the contract, and Capital One wasn't willing to accept its demands. Walmart and Capital One declined to comment. Ultimately, the economics of these partnerships tend to favor the brands. - In all likelihood, you know, 2/3 or 3/4 of the total revenue that's generated by this will go to the brand partner.

So it does mean that the issuer kind of has less of the overall economics, and also in a somewhat residual position, because the brand gets paid first. The credit card partnerships have proven to be extremely useful to the brand in terms of creating an additional revenue stream, but also creating additional loyalty. For some companies like airlines, no rewards program, no credit card program can be the difference between being in business and not. [Narrator] And even when banks don't get a majority of the revenue made through these partnerships, these co-branded cards still provide them a key benefit. It brings in customers who the bank might not otherwise have. All of this equals what? More customers, more purchase volume equals more revenue. [Narrator] And experts don't expect the co-branded credit card industry to stop growing anytime soon. I think these will grow faster than the overall credit card industry 'cause you're gonna constantly have the brands

trying to earn more money from them, and the issuers kind of who want to have these larger portfolios of
high-spending consumers. (gentle music)

Why Co-Branded Credit Cards Like Bilt Are So Risky for Banks | WSJ

The Wall Street Journal takes you inside carefully selected stories and events in a visually captivating way so you can dig deeper into the news and insights that matter to you. 

The Wall Street Journal

The Impact of Credit Card Partnerships on Banks and Brands

Wells Fargo is losing up to $10 million a month due to a costly credit card partnership, highlighting the high stakes involved.

Credit card partnerships make up a significant portion of the largest US issuers' portfolios and are expected to continue growing, despite high-profile failures.

These partnerships aim to build customer loyalty and drive revenue for both the bank and the brand involved, while also benefiting card networks like Visa and MasterCard.

The Economics of Bank and Merchant Partnerships

Banks and their partners determine revenue sharing from customer card usage.

Merchant partners profit from new account openings and receive payments from banks for customer rewards.

In 2022, the average payment to merchants for every open account was $279, and Delta made almost $7 billion from its credit card partnership in 2023.

Co-branded credit cards are growing in popularity in the US, with over a third of general-purpose credit cards being co-branded in 2021, mostly in the travel and retail sector.

Some partnerships, like Wells Fargo's with BILT, offer unique perks, such as turning rent payments into credit card rewards, despite the high fees involved.

Wells Fargo's Struggle with Co-Branded Credit Cards

Wells Fargo is losing millions of dollars a month on its partnership with BILT, leading to a decision not to renew the contract unless the terms are changed in its favor.

The bank's miscalculated projections on consumer behavior have resulted in significant losses from the co-branded card.

Apple's partnership with Goldman Sachs for the Apple Credit Card also faced challenges, with the bank deciding to exit the consumer lending space due to high costs and regulatory oversight.

Goldman Sachs' Risky Venture with Apple Card

Goldman Sachs suffered significant financial losses in its venture with Apple Card, as it agreed to unusual terms and conditions, ultimately sacrificing valuable income streams.

The partnership's requirement to approve a large number of cardholders, including those with low credit scores, led to higher bank losses, causing a major sticking point.

Walmart and Capital One also faced challenges in their credit card partnership, with the economics of these ventures often favoring the brands.

The Impact of Credit Card Partnerships on Revenue

Credit card partnerships provide an additional revenue stream and increased customer loyalty for brands.

These partnerships also bring in new customers for the banks, ultimately leading to higher revenue.

The co-branded credit card industry is expected to continue growing as brands and issuers seek to increase their profits and customer base.