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**.

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

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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.