Especially with that article in the Globe and Mail yesterday, there is a significant amount of interest over whether CIBC will renew with it’s agreement with Aimia. Well, at least I have an interest in whether they’ll come to an agreement…
From an consumer perspective I would have to say that it would be really good if Aimia decided to head over to another bank, because that would mean the whole market would shift and there would be an opportunity for other issuers to snatch customers. This would be really good, because that most likely would mean higher signup bonuses, benefits, and improvements to card products to lure customers, as well as increased media advertising. As I’ve said in my post on the American vs. Canadian credit card market, I think that credit cards are a much bigger thing in the US.
The US has a much higher rate of acceptance with AMEX, as well as a smattering of smaller issuers such as Discover which simply isn’t present in Canada. Only recently have we had Visa Debit introduced! Of course, we also don’t have a huge prepaid card market either (no Vanilla or Bluebird, sadly). The more advertising there is, the better the exposure is going to be. Of course it could be population limitations, but even the week I was in New York, I noticed a lot more advertising for credit cards! The ads are also produced much better, but that’s another story.
In reality, though, there are two thing hindering that. First of all, to be honest I don’t think there’s going to be a significant change in the agreement. Both companies will be doing a bit of posturing, but it’s a profitable relationship and while in the long run there might be some upside with CIBC specifically, most companies aren’t really looking for that (we can see that in the US market, with the exception of Chase).
Theoretically, if the split happens, then Aimia is going to have to go running to someone else. That initial period is what I’m not going to like simply because it’s going to affect the whole equilibrium of credit card churning. CIBC will stop offering the 100% promotions that it has for the last year and a half, there won’t be really easy ways to get Aeroplan points (one can only get so many Amex cards and they simply don’t have the coverage in Canada) and it’ll be a period of time before everything will be back to normal.
The only banks that would work and could support CIBC’s volume that have been thrown around are Scotiabank and National Bank of Canada. I also saw a BMO Harris Equity Research report which you could access here which referenced Aimia’s relationship with CIBC. I’m not sure how accurate certain numbers are but it’s definitely very interesting to look at.
Essentially they suggest that CIBC has decent alternatives should the negotiations fall through, while CIBC’s payments to Aimia represent a significant amount of its revenues, and thus it will be difficult to make that up. I would take it with a grain of salt, as the report suggests that CIBC pays Aimia 1.3 cents per mile, which I think is absurdly high, simply because that means even buying miles wholesale would make redemptions very expensive, and given that everyone can purchase US Airways miles at 1.1 cents during a 100% transfer promo.
Basically, for the consumer the question is whether they are going to follow Aeroplan as an award program, or whether they will follow the bank (CIBC) with whatever product that they will introduce to replace the Aerogold credit card line. I really don’t know (and I wish I did), but I would have to agree that the customers will follow the bank, since co-branded cards/transferable point cards have never been “in” in Canada. It’s quite strange, actually, because you’ve got Amex, Barclay, Citi, Chase battling for the majority share of the credit card market with transferable point cards. Then after that you’ve got co-branded cards from Delta, United, American, and US Airways. Then only do minor credit cards (such as the 50k Barclay’s Miles & More card or the 40k Arrival) make a splash.
In Canada, however, you’ve only got 3 out of the 5 major banks offering points cards belong with frequent flyer programs (and one of them is a joke). All the other issuers are perfectly happy with flexible reward redemptions that offer a maximum of 2% per dollar spent. I would guess it’s because of the population disparity, which results in only one international airline (Air Canada), as Westjet has a revenue based rewards program. So that means there aren’t that many award programs so sell miles to credit card issuers. But that also means that it’s not worth it to tailor a rewards program to such a limited population.
In any case, it’ll definitely be interesting to see what will happen. Their contract expires at the end of this year, so we will see soon.