#481: Co-Brand Cards - Commercial and Complex but Critical to Success

Today’s episode of LTL which is a masterclass in co-brand cards, the single biggest driver of profits for so many loyalty programs.

Nik Laming is an independent consultant and strategic advisor who has spent his whole career dedicated to loyalty programs, including roles as the former head of AIMIA and Carlson Marketing in Asia, as well as the former head of loyalty for Cebu Pacific airline in the Philippines.

Nik is now based between Singapore and the Philippines, where his new business Loyalty ConnectOS enables loyalty, digital and data businesses to access resources offshore to extend their teams for data analytics, operations and marketing execution.

Listen today to enjoy my conversation with Nik Laming, all about creating successful co-brand partnerships that deliver value for programme owners, programme members and of course their banking partners!

Show Notes:

1) Nik Laming

2) Loyalty ConnectOS

3) #417: Viva Aerobus Launches Compelling Loyalty Concept in Mexico

Audio Transcript

Paula: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m your host, Paula Thomas, and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.

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Hello, and welcome to today’s episode of Let’s Talk Loyalty, which for me was really a masterclass in co-brand cards, the single biggest driver of profits for so many loyalty programs and a product I’ve personally, never yet had the chance to work with. Nik Laming is an independent consultant and strategic advisor who has spent his whole career dedicated to the loyalty industry, including roles as the former head of Aimia and Carlson Marketing in Asia, as well as the former Head of Loyalty for Cebu Pacific Airline in the Philippines. Nik is now based between Singapore and the Philippines, where his new business, Loyalty Connect OS, enables loyalty, digital, and data businesses to access resources offshore, to extend their teams for data analytics, operations, and marketing execution.

I hope you enjoy my conversation with Nik Laming. All about creating successful co-brand partnerships that deliver value for program owners, program members, and of course, their banking partners.

So, Nik Laming, welcome to Let’s Talk Loyalty. 

Nik: Hi, Paula. Yeah, great to be on here. 

Paula: Great. It’s a long overdue conversation, Nik, so I should probably start with an apology. There’s so much we’re here to talk about today, and you are an industry expert talking about one of my new favorite topics, which I have very little knowledge on Nik. So we’re here to really talk about the whole business of particularly co-brand. I know one of the main things that you do advise a lot of both airlines and other businesses around the world on. So plenty to talk about Nik, really excited to have you on the show. 

So as you know, we always start our conversations here just to get a sense of what our guests really admire both personally and professionally in our industry. So I’m going to kick off with the same question as usual. So Nik, tell me what are your two favorite loyalty programs? 

Nik: Yeah, I think on a professional level it would have to be the program and you had Pablo from Viva Aerobus on here fairly recently. 

Paula: Yes.

Nik: The Doters program in Mexico, because I had the fortune to be on the design team and advising them. And I think they’ve done a cracking job of exemplifying what a next gen lifestyle loyalty program is all about and we’ve all talked about these type of programs and, but it’s very hard to deliver on it. So I think that will be my number one and on a professional level. They’ve also done a great job with a co-brand. So I’m sure we’ll get the opportunity to talk about that a bit more later. 

And then secondly, on a personal level, it would have to be Singapore Airlines, KrisFlyer. Because I am a member of a lot of programs. I fly several different airlines, but the one that I’ve had the most benefit from a loyalty program from was KrisFlyer. And by that, the sort of moment of truth where I was able to fly my parents around the world up the front. And that, that was one of those rewards that you just don’t forget. So that, that’s probably why they would be my personal favorite.

Paula: Yeah. Amazing. Amazing. Well, I mean, we talk about emotional loyalty so much on this show, Nik, and it’s one thing to have a reward for yourself, but I think it’s a very different thing to have a reward for your parents. So I can only imagine as a proud son, to be able to put your parents up front to be an incredibly yes, just very emotional thing to be able to do. And that’s something I think most of us have had the opportunity. 

You’ve actually reminded me one thing I got the opportunity to do before my loyalty days, but in my airline days was I was able to take my mother on Concorde. So, you’re absolutely right. These are the kind of memories that I guess the airline industry particularly allows us to enjoy. So well done, KrisFlyer. And we haven’t yet had KrisFlyer on the show. So big shout out, if anybody’s listening from Singapore, we would love to do that conversation where certainly a keen to share that story because of the incredible work that they do. 

And of course it would be remiss if I didn’t, of course, comment. You’re absolutely right. Pablo was on the show recently with the Doters program and really impressed me in a couple of ways. And I’m glad I now know actually, Nik, that it was you who was, you know, a strategic advisor for that program because he mentioned that he brought in, you know, amazing expertise, and I just never got to ask him who that was.

And I think what I particularly admired in terms of how Pablo approached the whole thing was, you know, he’s a strategy guy, but very much aware that he doesn’t have the practical expertise that a strategic independent advisor like you would have. So to bring in a global expert in order to make sure that you can get it right the first time was something that I just thought Pablo did extremely well. So, a huge credit. And if anybody hasn’t heard that episode, of course, we’ll make sure to link to it in the show notes. So we’ve got plenty of opportunities to make sure people get access to that.

So listen, let’s get into co-brand, Nik. As I said, this is something that I am feeling very naive about. It’s something that I’ve never worked on. I would have no clue how to go about doing it. And in fact, I think I’ve even perhaps missed a big opportunity in my own career in the past, you know, working on loyalty programs, which might have had a currency, for example. And never consider that a co-brand card might have been something that strategically we could have considered. So I think just to start at the very beginning, Nik, let’s get straight into what is a co-brand card?

Nik: Yeah, the, it’s, and just relating to you the story that you told there about a lot of people don’t realize the kind of opportunity that having this co-branded card actually represents for a loyalty program. So, I do think it comes as maybe a surprise to some when we’re working on a program design product for an airline of a loyalty program. All we’re really talking about is co-branded cards. We’re not actually that interested in many of the other things. And it does come as a surprise. So it is an opportunity that’s either underrepresented or remains on the table for a lot of airlines.

And just before we get into it I must give a shout to Evert de Boer and the guys from On Point because that was who were behind the rest, The Doters program. So it would be remiss of me to take full responsibility for that.

Paula: Okay, noted. Perfect.

Nik: But that is a great opportunity. And as we go through that process, as we have with several other airlines a co-branded credit card is exactly as it sounds. It is a credit card product that generally has two brands on it or two brands have come together, and that is an airline or a retailer or a loyalty program operator and a bank or a card issuer. And they come together. in a very neat way to offer a credit card or in some cases, there’s also a debit card or prepaid or a virtual wallet, but we can maybe talk about that a bit later.

Let’s focus on credit card for now. And it enables the members of the loyalty program to sign up, to apply for that credit card and then there are a few variants of it, but in an ideal world, what happens is that you sign up as a member to the co-branded card and you get treated to some benefits that it unlocks and you also get the opportunity to earn points or miles directly on all of your spend. So wherever you spend your earning points or miles that just pour into your loyalty account with the program and enable you to get to a reward much, much quicker. 

Paula: Amazing. Absolutely. I’m writing down the words. I always pick up on things my guests say, as you probably noticed before, I know you listened to the show, but pouring in is a very, a very aspiring term or very welcome term to hear you use, because I think it’s fair to say that when it’s done well, and I think that’s exactly the topic for today, it pours in for everyone. And there are the three stakeholders, there is the bank, there is of course the brand, and there is of course the consumer. 

And, you know, as I went through the thinking and planning for today’s conversation, for me, what stood out in terms of your, I suppose, teaching and, you know, commentary, LinkedIn is the importance of keeping the co, in the co-brand, you know, it’s to keep that sense of partnership where everybody benefits because ultimately, and I’m sure we’re going to talk about some examples. There’s a recipe for disaster at the same time. If anyone stakeholder is benefiting, and that could be, you know, for example, fraud, I guess that’s abuse of a program. And I know there’s been issues with that, for example, recently in Canada. There’s also an example you posted about as well where the bank came off poorer, perhaps through an experience in the case of the Apple credit card. So I think for me today, one of the big learnings is co-brand means all stakeholders have the benefit. I think you had some nice terminology about it might even be like a stalemate. But actually it has to be that way. Otherwise, ultimately it’s not going to be sustainable and sustainably successful. 

So at the risk of laboring the basics again, Nik, you know, again, for my pure personal curiosity, the two things that struck me again, I think a lot of the audience know that I started in telecommunications. So again, we didn’t have a currency. We actually didn’t think about a co-brand card, therefore, in that context. So one, there does seem to be a model available even for other people in this audience who might not have a currency. So would welcome your comments on that. 

And secondly, just a sense of a minimum viable audience, because again, I was in Ireland. So Ireland is a country that’s often neglected by brands because we’re only, I think at the moment, 5 million, or maybe we’re up to 6 million people now, but you know, even a leading telecoms brand, you know, what would be good enough for a card to start to make commercial sense? Because of course, there’s a lot of work that would go into designing a co-brand solution.

So we’d love just your thoughts on those two initial, I suppose, thinking points for people listening to the show today who might not have a co-brand. 

Nik: There’s quite a lot to unpack there, but I’ll start off just saying why these loyalty programs are interested in having a co-branded card. And it goes right back to the basic business model that especially the airline programs run. 

On the supermarket programs tend to be slightly different because they’re really leveraging data to get money or revenues from their suppliers. But the airline programs have come up with a great model where they’re able to have these co-brand cards and there’s millions and millions of points or miles getting issued on those co-branded cards. And that generates revenue because what the airlines are doing is they’re selling those points or miles to the bank and then the bank can give those points to their customers. So that, that’s why it’s a win, win for all of the stakeholders and we’ll talk a little bit about balance in a moment. 

But what this has resulted in is that loyalty programs for airlines are really not loyalty programs for airlines, but they’re thinly veiled financial services companies that are bolted on or attached to airlines. Because one of their sole purposes is how do we become self-sufficient and generate external revenues that fund all of these rewards and great benefits that the airline are giving?

So, to give an example there, IAG reported that, which is the and their, the loyalty arm. They reported that there, it was a high growth capital, light cash generative business that they generated 141 million pounds in the first half of 2023. And it was 50 percent growth in these non air business versus before COVID. So what you can see there is that it’s a really attractive business model because a loyalty program that’s generating money from a co-brand is very profitable. It’s generating a huge amount of cash and it is literally saved airlines during COVID. Because that model was responsible for the big American carriers being able to use their loyalty program as collateral to borrow chunks of money during COVID. And there are a number of examples of other airlines that have used it as an asset. So it’s a great business model. It’s point one. 

Point two is that these type of co-branded cards are super impressive when they get going right. And Qantas have been a great exponent of this type of model in the 35 percent of the total credit card spend in Australia goes through Qantas Frequent Flyer.

Paula: Wow.

Nik: So that’s a staggering statistic. When you consider that you’d have thought it would be a credit card company that’s benefiting most from the credit card spend in Australia, but it’s not. It’s Qantas. They have a huge share of the market through their various co-brand products. And in one of the LinkedIn posts that you mentioned, American Airlines have certainly realized that it’s important to them because they instructed their call center to stop selling car hire and start selling credit cards instead.

And why did they do that? Well, they did it because they generate four and a half billion dollars in point sales to city and Berkeley card every year. So the other thing is that it comes from a very small portion of the base. So American Airlines is a vast business with a huge frequent flyer program. Only 14 percent of the customer base have the credit card. So they’re delivering a massive chunk of revenue. And I think we can apply that to your, what’s the minimum viable audience. What I would say to that is the minimum viable audience is the minimum size that a bank will get excited enough to want to do the card.

So in, in some of the markets that I work in, you don’t have the benefit of this huge credit card base because there just aren’t that many people who are credit worthy. That said, the banks are still looking for these portfolios. And so they’re very willing to do a co-brand product or a variant of it with smaller audiences.

Paula: Interesting. Yeah.

Nik: And well, because they’re just so profitable for the bank, now that comes back to what’s in it for the stakeholders. And there are three parties in here. You’ve got the customers, you’ve got the bank themselves, and then you’ve got the airline or the loyalty program. And they’re in conflict for who gets the most value from this product.

In the airline or Apple in the, in, in the example that you mentioned are in it for their customers, so they want to give the maximum rewards, the maximum amount of points, the maximum benefits, the best possible customer experience to their customers. And the customers love it because they’re getting rewarded for doing what they do every day on a pretty boring thing, which is a credit card.

So it really brings it to life and so customers love it because they get rewards. The airline or loyalty program love it because they actually get revenue, they get paid by the bank and it makes their customers happy. Why do the banks love it? Well, the banks generally love it because the credit card holders who are co-brand card holders spend more, they have higher outstanding balances, they’re less delinquent. Meaning they pay their bills. And all of those things mean that the bank earns money from either fees like interchange which is based on spend. But also interest, annual fees. And the model with a credit card is that you may not make any money out of it until the customer has had it for two or three years because of high acquisition costs.

The banks benefit from having this large pool of customers delivering a lot of revenue, although it is expensive for them because they have to pay a huge chunk of money to the loyalty program operator. But it also gets you usage. If you’ve got the choice of using a card that gives you rewards or a card that doesn’t, then nine times out of ten, you’re going to use the one that gives you the biggest benefit or rewards. 

So, banks are not stupid, and they’ve been very good at leveraging their power and the potential revenue to the airlines whose eyes light up. If you go to an airline and say, or a loyalty program operator and say, look, I would love to write you a check every month for having your brand on my card and being able to sell to your customer base. So airlines have got kind of punch drunk on this ability to generate income and monetize the database to the extent where they’ve just taken deals from very canny banks that have lots of experience and been able to negotiate a very strong deal in favor of the bank. 

Then in the past hasn’t really minded because I’m just getting money for jam here. This is, this is great, but what’s happened is they’ve come to a realization over the years that actually this is a very important part of my business. I need to take it seriously. I need to have experience people in the team. I need to have a focus on this business because otherwise, yeah, there’s going to be an imbalance.

So before we get on to that, the what’s in it for the different stakeholders for the cardholders, they get rewards. They’re happy. The banks get more revenue, more tenure, higher retention even though it’s expensive. And the airline get a nice thing to add to their value proposition that increases own velocity of members to get to rewards. And they get the revenue that’s being given to them by the banks. So when it works, it works really well. 

Paula: Yeah. Amazing. Thank you for that. Yeah. And you know, so many things I wanna pick up on already. You know, I suppose to go back to my, you know, beginning of my loyalty career, as I alluded to back in Ireland, it sounds like, you know, if I had been sitting again in 02 at the time and invited a bank come in to, to talk about a co-brand card. They might’ve been excited, but maybe less excited perhaps than if I was sitting in Aer Lingus, which actually at the time, I don’t think had a credit card. I could be wrong. They certainly do now, of course, as part again of the international airline group that you alluded to. 

But I do like that, I suppose, nuanced understanding about the quality of the credit card customer from an airline. Perhaps versus perhaps a mass market customer, maybe in a telecommunications loyalty program. So those are the kind of subtleties that again, you know, you have access to that. I probably, you know, just again, never really thought through in the terms of the detail before. But again, massive opportunities.

And again, the term punch drunk is definitely something that I think, you know, so many airlines were again, as you said, so thrilled with, you know, huge income coming in, but now feel like perhaps they didn’t do the best deal at the time. And particularly, I think we should allude to another of your LinkedIn posts, which was the one about Apple, for example, a card, which, you know, seems to be absolutely a winner for consumers, absolutely a winner for Apple, but Goldman Sachs, you know, you use the term that banks aren’t stupid. And yet Goldman Sachs seemed to be absolutely desperate to get out of the deal that they signed up to again, as perhaps an inexperienced bank. So I suppose it proves the point, Nik. 

So you might briefly touch on that example, just as you know, something that isn’t working in this case for the bank. And then we might just talk about what does success look like, you know, if we try and get that balance right for all the stakeholders? And maybe let’s focus on, you know, airlines again, because we have a huge audience again of airline people. 

And as you said, Evert, actually, we do want to give a shout out to. He is somebody that has educated us a lot and this audience in terms of talking about, again, the stable recurring revenue streams that loyalty programs can access through the loyalty program. So lots of light bulbs going off for me. So would you mind just commenting on the Apple card for us? 

Nik: Yeah. And this is an example where Apple are the champion of the consumer. And they’ve come up with a co-brand card concept that is obviously very much in favor of the consumer. And the problem with that is that the bank, in this case, Goldman Sachs, are footing the bill. And I talked about there being a need for tension and kind of equality, which leads to this glorious stalemate where the loyalty program and the brand are balanced with the bank because if that’s not the case, in terms of experience, in terms of negotiation, in terms of the proposition overall, so everyone has to win.

And in this case, it was too rich for the consumer. And this is me reading from the outside, from what is in the press. And Goldman Sachs have been forced to write a check for a billion dollars in, in, in losses to fund this product. Now that’s that, that’s maybe okay. If what you’re getting from it is this long term sustainable, it will get to profit eventually, but seemingly their patience has run out and why this generally happens, but it’s normally the other way around. In that the bank is normally the one that comes has come up with a deal whereby the winner is the bank, and maybe not the loser, but they’re not getting their share tends to be the brand. And we’ve seen some public spats that have gone legal around this where companies have been, where companies have been trying to correct that, that balance with the bank, some with more success than others.

So you, you need that balance, which is why you need experienced people that know what they’re doing at the airline to count to those people that definitely know what they’re doing at the bank. 

Paula: Right. 

Nik: And then the customer in that case will end up winning. 

Paula: Amazing. Yeah. Yeah. No, again, I think it’s a lesson to us all, Nik, you know, as I said, you know, Goldman Sachs is a very respectable, reputed brand. But I think a lot less experienced in this particular space. And again, hindsight is always a wonderful thing. So yeah, I think your point is well made that it’s important to have expertise on your side, particularly if you are the brand to make sure that you do get your fair share. Because at the end of the day, nobody wants to end up in some, you know, long drawn out unfair situation where any one of those three stakeholders is essentially benefiting to the expense of the other.

So, so let’s get into, I suppose, just the types of credit card models, Nik, because I know there’s two particular ones. And again, there’s probably varying levels of success based on what type of co-brand again, particularly an airline, just to keep it simple. So will you explain to us the types of co-brand models that we should be thinking about? And maybe again, some of our audience might realize that they have one and might be more curious about another. 

Nik: Yeah, the two broad types they’re typified by the way that points hit your account as a cardholder. One would be a direct transfer model where you go out, you spend on your card, that spend gets directly converted into points in your loyalty account. Every month or periodically or, so it just happens automatically they drop in. And in that model, that is the best by far for the consumer. It’s also the best by far for the airline or the loyalty operator. It’s probably not optimal from a bank perspective. 

The second model is where it’s a transfer model. So I have my credit card and I spend, I earn bank points on that credit card. And then I can redeem those bank points across or I can transfer them across into the loyalty program. And that may be one loyalty program. So it could just be that and I see a lot of the second tier airlines that have this relationship where it’s supposed to be a co-branded card, but what it actually is a transfer product.

So in that case, the bank’s hanging on to the points until the customer decides to go through the process to redeem them or transfer them. There’s a kind of A and a B in that model as well. Citibank, for example, has a product called PremierMiles, where that’s where you build up points in your Citibank card, and then you have a choice of airlines to transfer off to, amongst other rewards. So, that is a pure play, travel, transfer and rewards product, where the one I’m talking about is more where it’s supposed to be a co-branded card, branded up as the airline and the bank. 

But what the bank has done, very cleverly, is introduced friction. So not only do you have to say, right, I’m going to transfer my points now, you have to go through that phone call and generally it is a phone call or some process that tends to be quite complicated and annoying to transfer the point. So there’s lots of friction there. Why do the banks do that? Well, if you don’t use your points, it doesn’t cost the bank anything. 

Paula: Yes. 

Nik: So, great model for them. Bad model for the airline. So, but there are a lot of those models out there. The other issue, and we haven’t tackled the 800 pound gorilla in the room yet, which is data.

Paula: Okay. Of course. 

Nik: Because if you’ve got a direct transfer model, then you can also negotiate access to the data, quite granular data with the bank. Now, that is Pandora’s box from an airline loyalty perspective, because you’re able to really build a rich profile of your member base and do all the things that you’ve wanted to do because you have this big transfer data.

On the transfer model, if you imagine you’re earning all of your points in bank points and then only when you decide to do it, and that could be three years, it could be five years because a lot of these programs are evergreen, so your points don’t expire. Then the airline doesn’t even know that you have that card.

Paula: Wow. 

Nik: So they have no control that there’s no chance that they’re going to get the data. So it is a suboptimal model for sure for airlines, but there are a lot of these arrangements in place and some of them it’s due to, they have no choice. So if you’re a, if you’re a smaller airline or even a big airline trying to launch a co-brand in the United States or Australia or one of the sort of bigger markets, then a co-branded card with direct transfer may not be an option for you.

Because you, you have to have a massive base in order for that to be attractive to the US banks. If it is a matter of choice, if it’s your home market, then it’s inexcusable really to have that transfer relationship in place. And I would say that they’re the more old fashioned type of deals as well, where it’s about the bank minimizing cost. The airline just get that little bit of revenue, they’re happy. The customer ultimately isn’t happy because it’s just not easy and it’s not delivering value. 

Paula: Yeah. That’s exactly what I was thinking, Nik, because, you know, I have a, you know, Emirates NBD is my bank and Skywards is the program and it is that automated direct earn model that you talked about.

So as you explained the core differences, you know, I really look forward to my credit card statement coming through bizarrely enough, and I do pay it off every month. But I love to see, yes, here’s the Skyward Miles. And I know that two weeks later, they’re going to show up in my Skywards account. I have nothing to do.

And, you know, as I think about it from Skyward’s perspective, who again, we’re great friends with here on the show, of course, it makes perfect sense. And everybody, I do think benefits at the end of the day. So yeah, I really liked that piece. And I guess the other, you know, I suppose, I suppose it’s a minor point, but we often talk on the show about the issue of breakage and it being something that we don’t aspire to, but it is a commercial reality.

So, you know, if there is going to be breakage, you know, why should the bank benefit? If it is a case where of course the airline can make sure that they get whatever benefit again, which is a questionable one, but you know, absolutely another point in the overall mix. So, an awful lot to think about, and thanks for explaining why there might be some with the less optimal model, again, probably more of the audience listening to this might be in that situation, as you said, not by choice.

But the other piece I was also worrying, wondering about Nik as well is, do you think that brands should focus on a single bank partner? Should they go from multiple partners? Because I’m sure there’s again, pros and cons for each of those. And again, back to your LinkedIn posts which clearly everybody listening to this now has to follow you on LinkedIn. I think you mentioned now, Nik, that Qantas has 50 cards or 50 bank partners. I’m not exactly sure, but an extraordinary number. So what’s your thinking on whether brands should go for one or more than one?

Nik: Yeah, I think that’s a great question. And the Qantas example is a good one, and they’re probably the most evolved when it comes down to that model. But they’re also in a unique position in that they’re in Australia; they’re a major, major player, if not dominant. 

Paula: Totally.

Nik: Then what they were able to do is, several years ago they said, if you want to earn Qantas Frequent Flyer Miles, through a credit card, then it has to be a direct transfer. 

Paula: Okay, interesting.

Nik: And it has to be a co-branded card. So all of the banks were forced to launch a Qantas Frequent Flyer co-branded card. 

Paula: Amazing. 

Nik: Which means that you do have 50 something variants and you do have 35 percent of all the spend going through Qantas. Now, I think every bank would like, sorry, every airline would like to have that model. Every bank would definitely not like to have that model. We see a reverse in the States where it tends to be an airline with one or two or three bank partners and they’re really focused, they have a really tight relationship. And it works well, I think it works for everyone in that model. So two extremes, probably driven by market situation more than anything else.

If you have the opportunity as an airline and you’re sitting there looking at your market, there are going to be certain things that you need to look at before you can decide whether you need one partner, multiple partners, or the whole market. And those factors would be things like, what is your market share? What is your market power? How big is the market? If you’re in India, and we’ve been spending a lot of time in India recently.

Paula: I can imagine. Yeah.

Nik: Then you’re looking at the market and it’s enormous from a geographic perspective, from a diversity perspective. 

Paula: Sure. 

Nik: So if you’re looking to try and cover the market, somewhere like India, can you do it with one partner? We’ll, we’ll see. 

Paula: Yeah, fair point. 

Nik: On the flip side, are you dominant enough to say any bank that wants to give my points, has to issue a card in my name and I’ll control that. Do I have that level of market power? So. It’s quite unusual in that we’ve got polarised strategies in the US with very few bank partners. In Australia, we’re very, very diverse. So there isn’t a simple answer to that question, but I think it also comes down to maturity in that how long have you been doing this? You couldn’t just jump in and say, well, I’m going to create a Qantas model. I’m new to loyalty or my program’s been pretty average, this is what I’m going to do. I just don’t think that’s realistic. So you need to take a look at each situation and adapt the strategy to maximize your coverage, maximize competitiveness as well in that you want the banks to be competing. So you need to be attractive. 

Paula: Of course. Yeah. Yeah. And as we record this now, it’s September 2023, Nik, as well. And another thing you mentioned to me, off-air, which again shows how seriously, I suppose, other brands are taking this within our extended industry. So I think you mentioned that booking.com are appointing certainly a leadership person or team, I’m not exactly sure of the detail, but it sounds like they realize that yeah, they can’t just jump in even given their market dominance as a, you know, a hotel engine. It feels like that they realize that the importance of the expertise that you’re talking about has to be throughout that organization before they can optimally develop their co-brand partnerships. Would that be fair to say? 

Nik: Yeah, I think there’s. What they’ve seen is, there’s a North Star here, and the North Star is, there’s a wonderful opportunity for us to emulate the airlines and come up with a product that generates us money, locks in our customers or influences our customers. It increases the share of life that we have with our customers as well in that we’re a bigger part of their life. So when they’re spending in the supermarket, they’re thinking about, oh, does that mean that I can now get some reward from Booking or that, well, their airline? So they’ve seen that North Star and they’ve also realized that this isn’t something that you enter into lightly. And that they’re going to be negotiating with the big players and in order to come up with a product that works, they need that level of expertise. So they’ve recruited someone to lead it with extensive experience and he’s building out a team. 

So, I think they’ve been very smart in their approach and, but the size of the prize is gigantic. To quote, there was in Germany fairly recently Miles & More Lufthansa’s loyalty program and announced that from 2025. Deutsche Bank is going to take over the co-brand portfolio for Miles & More. And they quoted some statistics in that it will double the transaction volume of Deutsche Bank that, that portfolio, it should generate a hundred million euros in annual revenues. Members spend five times more than non members in the program and that it will actually represent 20 percent of Mastercard country revenue. So these are huge stats. And it’s not really surprising that other brands want to get in on the act because the airlines have built such a wonderful business in so many markets, working with these banks. Why wouldn’t booking.com and others consider doing it? And the telcos to your point earlier?

Paula: Totally. I mean, there’s light bulbs going off everywhere here, Nik, because honestly, it is exciting when the prize, as you said, is so huge. And I’m conscious we’re coming up on time and we haven’t even begun to talk about, as you said, data as a huge topic in its own right interchange of course, globally. I know you have amazing expertise and insights in how different that is. And of course, how it dictates, of course, the end products as well, and affects perhaps consumers in a negative way in certain markets, for example. 

But the final main point I wanted to ask you about today, Nik was around, I suppose, the relevance of status in terms of co-brand, because we had American Airlines recently on the show, as I think, you know, and there’s definitely to me, a dramatic change happening within airlines. So I’d love you just to explain that for our audience. How does status relate to the co-brand card? How should they be thinking about that as we go forward into 2024?

Nik: Yeah, the status is like a secondary currency that the airline programs have. And again, it’s been relatively underutilized as a currency in its own right, it’s tended to be more of a thank you and reserved for the very top members, but American Airlines really turned out on its head.

And I think, and again I’m reading from outside the lines here, I think they took a look at their business and realize that a co-brand credit card and the spend that comes with it is super expensive, is super beneficial to them as a brand. And it’s a big part of the business model. So they should be rewarding in some way with status and whatever else they have in their armory. Those members who are willing to take it up. So they took a look at their whole status program and they re-engineered it to accommodate, but not just to accommodate credit card earning that you can now, when you spend, you earn a loyalty point and that loyalty point goes towards your status in the loyalty program.

So what they’ve been able to do is reward those people for big spends on their credit card. What that meant is that they had to make a call here because commercial reality bites. And I think Delta might be going through the same thing at the moment, is that if you give more people status based on their credit card spend, you may challenge your economics of being able to afford the loyalty program as a whole because of the benefits you give out come at a cost.

So what they were forced to do is give and take in that I can give status points to those people on their credit card, but then I need to raise the overall level of qualification for my elite status. So instead of earning, needing to earn X thousand qualification points, you had to earn far more. And that just reflected the fact that if you took the credit card, then your own velocity of status credits or qualification miles, loyalty points goes up. So they had to make it hard for you to get there. 

Now, what that meant is that those people who just earned from flying are going to struggle to earn status because of that increased threshold. But it’s a smart model because when you look at it from a loyalty program operator perspective, you want your revenues, your funding to be coming from the co-brand cards. So you have to reward it. Somebody has to not lose, but it has to be more challenging to others. 

So that was a big shift that we saw from the discussions with Emirates. They recently announced they had, I think 2.45 percent in the Elite tiers. of all of their 32 million base and 0.05 percent in platinum, so a very tiny portion of people. So imagine what happens if you shifted that as American Airlines did to a model where you can get more people potentially earning that status. So it has to be give and take. 

Paula: Absolutely. Nik, I feel like we could do a whole second hour on this, but I’m going to save that for another day because yeah, there’s so much in there. And this topic is only just kicking off, I think, from a Let’s Talk Loyalty perspective. I suppose, as I recap on the statistic of all of the ones you’ve shared with us, the one that really landed as you know on LinkedIn was this, you know, American Airlines, $4 billion, but just from 14% of the base. So the scale of the prize, you know, the size of the opportunity if they were able to get that penetration up, was really what I suppose opened my eyes to it.

And I almost feel like, you know, reflecting back to my MBA days where the one abiding lesson I learned when I did my MBA was, it’s all about capturing the value. And as business people, that’s really, I think what you’re talking about in terms of making sure people understand that there is so much value at stake. Make sure you get the economics right at the very beginning so that you absolutely optimize again to keep your customers happy, have the maximum benefits, of course, as the issuing brand, which is of course, our core concern on this show. 

So listen that’s all I wanted to go through today, Nik. Is there anything else you wanted to mention before we wrap up?

Nik: I think that I would just summarize to say that it’s a great opportunity, these co-brand cards you do need to be careful when you’re putting it together. You do need a genuine partnership and that yes, the economics are really important. The value proposition for the customer is also really important, so you have to get that right.

And then the final thing is that probably the data. We shouldn’t forget the data. We didn’t really talk about it, but the data is really that very thick, rich cream on top of that loyalty cake. Because and you must get it and you must consider that as a big part of these co-brand products. 

Paula: Amazing. 

Nik: It was great talking to you.

Paula: Amazing. Wise words, indeed. We’ll save that for the next conversation. So I’ll make sure, of course to link to you in the show notes, Nik. So Nik Laming, independent consultant and strategic advisor. Thank you so much from Let’s Talk Loyalty. 

Nik: Thanks Paula. 

Paula: Thank you so much for listening to this episode of Let’s Talk Loyalty. If you’d like us to send you the latest shows each week, simply sign up for the Let’s Talk Loyalty newsletter on letstalkloyalty.com and we’ll send our best episodes straight to your inbox. And don’t forget that you can follow Let’s Talk Loyalty on any of your favorite podcast platforms. And of course, we’d love for you to share your feedback and reviews. Thanks again for supporting the show.