Canada has seen significant numbers of credit card launches, co-branding deals and portfolio acquisitions in recent years, as issuers capitalise on Canadians’ appetite for reward programmes. Robin Arnfield reports
According to Bond Brand Loyalty’s 2016 Bond Loyalty Report, published in association with Visa, Canadian consumers belong to an average of 11.3 loyalty programmes and are active in 7.3 programmes.
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Rewards programs are a major driver of Canada’s credit card market, which has seen the number of MasterCard and Visa credit card accounts rise from 26.4 million in 2006 to 30.9 million in 2014 and 32.3 million in 2015, according to the Canadian Bankers Association.
“Each major Canadian bank operates a proprietary travel rewards programme and cashback product, making these the two most popular categories among Canadian credit cardholders,” says Mike Bradley managing director at NorthCard, a Toronto-based payments consultancy.
“Co-branded credit cards, which are usually MasterCards, are particularly important to Canadian retailers such as Canadian Tire and Loblaw Companies, as they build off major loyalty programmes at these retailers,” Bradley adds. “There are a lot of very strong value propositions attached to some of the co-branded cards,” Lynda Lovett and Mary-Anne Huestis of Canadian financial market research firm MarketSense say.
Coalition schemes
Credit cards affiliated to Canada’s two main coalition loyalty schemes, Air Miles and Aeroplan, are an important component of the Canadian market, with three out of Canada’s top six banks participating in coalition programmes. Aeroplan is owned by Aimia, and Air Miles is owned by LoyaltyOne.
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By GlobalDataIn 2013, Aimia signed a 10-year deal with TD as the primary issuer of its Aeroplan-branded Visa credit cards, having previously had CIBC as primary issuer. Amex Canada also offers Aeroplan credit cards.
As part of a settlement with CIBC, TD acquired around 550,000 Aeroplan credit cardholders – the half of CIBC’s Aeroplan customers who didn’t have a broader relationship with CIBC. CIBC, which re-launched its proprietary Aventura travel rewards credit card in October 2013, retained the remaining 50% of its Aeroplan portfolio under a 10-year agreement with Aimia.
In a separate deal in 2011, TD acquired MBNA’s Canadian credit card portfolio, which continues to use the MBNA brand.
“TD and CIBC’s Aeroplan dispute created a lot of churn, as issuers flooded the market with introductory offers to attract people concerned about what would happen with their Aeroplan credit cards,” Lovett and Huestis say. “We haven’t seen any growth in card numbers for issuers affiliated with Aeroplan – it’s been pretty stable. There’s a core group of cardholders who really benefit from Aeroplan, as they are high-spenders or travel a lot, and can maximise their Aeroplan point earnings.”
Air Miles
Air Miles credit cards are offered by BMO Bank of Montreal (BMO) and Amex Canada. Unfortunately for these issuers and their cardholders, at the end of 2011 LoyaltyOne introduced a five-year expiry date on Air Miles rewards miles. From 1 January 2017, any unused Air Miles collected before 2012 will expire, and miles earned from 2012 will start expiring on a quarterly basis once they hit the five-year mark.
Aeroplan introduced a seven-year expiry rule in 2007. But, after consumer criticism, Aeroplan cancelled the rule before Aeroplan miles started expiring in 2014.
Market dynamics
“The average Canadian credit cardholder carried 2.2 cards in their wallet in 2015, continuing a downward trajectory from 2012, when the figure was 2.7,” Lovett and Huestis say. “A desire to maximise reward points and consolidate spending to better manage expenses are behind this trend.”
“Canadian bank market share is very concentrated among a relatively few players, and provides the scale for the Big Five banks’ credit card businesses to offer a broad range of cards to their customers,” say Lovett and Huestis. “This means banks’ customers don’t have to venture outside their bank to find the type of cards and rewards they desire.
Royal Bank of Canada (RBC), TD Canada Trust (TD) and CIBC all offer both Visa and MasterCard to their cardholders, while Scotiabank offers both Visa and Amex and is the only Canadian bank issuing Amex (BMO only issues MasterCard).
The range of programmes and card types offered by all the issuers are broad, so, unless something is truly unique – or offers a stronger value proposition – cardholders can often find a card to satisfy their needs from their existing bank.”
Credit card penetration
“The average credit card penetration among their chequeing account customers varies from between 41% to 62% among the Big Five banks,” say Lovett and Huestis. “Some issuers such as TD and RBC are more successful at placing their cards among their existing client base.
Others, such as BMO and CIBC, are attracting cardholders to their franchise from outside their customer base due to the nature of their programmes – ie Air Miles and Aeroplan. The value propositions attached to the Air Miles and Aeroplan programmes are strong enough to attract cardholders solely for the programmes, not for other products and services.”
This may change in 2017, as Lovett and Huestis note growing dissatisfaction with Air Miles and expect to see some fallout, especially with the point expiry deadline looming. “The fact that Air Miles points will start expiring on a quarterly basis will make it difficult for people to accumulate and redeem large balances for travel purchases,” they say.
Quebec is very different from the rest of Canada, with Desjardins (Mouvement des caisses Desjardins) dominating the Quebec card market, Lovett and Huestis say. “A high 78% of Desjardins cardholders deal with that FI,” they note. “Quebeckers are very loyal to their own brands, and the other big banks have a hard time competing with Desjardins and National Bank in Quebec’s credit card market.”
Reward categories
“Travel rewards continue to be the most popular category of reward credit card, with 46% of Canadian credit cardholders carrying a credit card with some type of travel reward on it,” say Lovett and Huestis.
“This number has been incredibly stable. Retailer rewards credit cards are the second most widely carried, now sitting in the wallets of 37% of cardholders. Cards in this category include the President’s Choice Financial MasterCards, issued by President’s Choice Bank; Canadian Tire’s MasterCards products and the Walmart Canada Rewards MasterCard, issued by Walmart Canada Bank.”
The cashback category continues to see many new entrants. “This is being driven to some extent by cardholders seeking a more straightforward reward for their spending,” say Lovett and Huestis. “In 2015, 27% of MarketSense survey respondents reported carrying a cashback rewards card. Of the new cards launched in 2015, half were cashback rewards, as issuers recognise and tap into this growing interest.”
A desire for consolidation continues to be a sentiment held by an increasing number of cardholders with 35% of MarketSense survey respondents in 2015 seeking to consolidate their credit card accounts. “At the same time, we’re seeing strengthening in the importance of rewards as more cardholders agree that ‘they only carry credit cards with rewards’ (59% of cardholders), up from 34% when we began tracking the market in 2006,” say Lovett and Huestis.
“Rewards are responsible for driving an increased preference for credit cards over other payment methods, with 48% of cardholders surveyed in 2015 preferring credit cards, 17% preferring cash, and 35% preferring debit.”
Walmart Canada
“We’re watching with interest what will happen to the composition of Canadian cardholders’ wallets,” Lovett and Huestis say. “Costco Canada no longer accepts Amex, and Walmart, in certain regions, is no longer accepting Visa. This has the potential to increase the presence of MasterCards in the Canadian market.”
Walmart Canada warned in June 2016 that it would ban Visa cards at its 400 plus stores across Canada unless it got a better deal on what it said was the “unacceptably” high cost of Visa interchange. Its first move was to stop accepting Visa-branded cards at its stores in Thunder Bay, Ontario from July 2016.
As of October 2016, the only province where Walmart Canada has banned Visa cards is Manitoba, having as yet failed to reach agreement on fees with Visa.
CBC quoted Walmart as saying in October 2016 that the Visa ban “could spread to other Walmart locations in other provinces,” and that “Manitoba was selected, because stores in the province are ‘most ready’ to phase out Visa.” However, Walmart told the Canadian broadcaster it is committed to continuing negotiations with Visa, and is still hopeful of reaching an agreement.
“We know from our experience in Thunder Bay, Ontario that consumers want the option to use the payment method of their choice when shopping – including at Walmart stores,” Visa Canada said. “Visa remains committed to actively working with Walmart so Canadians can use their Visa cards wherever they wish to shop.”
Comparison between issuers
“The major issuers are somewhat different in their approach to the cards market,” say Lovett and Huestis. “RBC and TD have their own programmes which allow them to control the delivery of some of the more coveted travel rewards.
Their ‘travel anytime’ messaging resonates with cardholders frustrated with an inability to redeem for flights on the major coalition programmes. Also, RBC and TD’s respective portfolios include a range of value propositions to satisfy their client base and keep them within the franchise.”
“BMO’s portfolio was heavily reliant on the Air Miles proposition, but we’re noticing increased promotion of BMO’s World Elite MasterCards, both the travel and cashback versions of the World Elite cards,” says Lovett and Huestis.
“Scotiabank has been a unique player in the credit cards space with its successful Momentum cashback and Scene (offering redemption at Cineplex cinemas) Visa cards. Although it offers its own rewards programmes, Scotiabank is continuing its ‘partnership model’ with its GM Visa (car purchase) and More Rewards (offering Overwaitea Food Group’s More Rewards points redeemable for groceries, gift cards and travel) Visa cards.
CIBC is aligned with Aeroplan, but also offers cardholders an alternative with its Aventura rewards and a broad range of other Classic, cashback, student and retail partner cards.”
“National Bank is a small player overall, but has a stronger position in Quebec where 10% of cardholders claim to carry one of its cards,” say Lovett and Huestis. “Recognising the growing interest in cashback rewards, National Bank launched a new Echo Cashback Rewards card in 2016. The Quebec cards market is poised for growth, and Quebec appears to be ready to catch up with the rest of the country in terms of carrying cards with rewards, especially cashback.”
“TD has been focused on building the base within its Aeroplan portfolio, and promoting its proprietary travel rewards credit card,” says Bradley. “Scotiabank continues to invest heavily in its Momentum cashback card and its Amex partnership. Its online-only subsidiary Tangerine has just launched a popular new Money-Back credit card.”
“RBC is mining retail banking relationships to promote its RBC Rewards programme and Avion travel cards,” says Bradley. “Following the loss of its exclusive Aeroplan partnership, CIBC has diversified its strategy with a further push on Aventura cards, Dividend cashback cards and a co-branded credit card with Tim Hortons, the iconic Canadian coffee brand.”
CIBC
“We provide a mix of travel, cashback and retail rewards to ensure our clients have reward options that best fit their lives,” says Jeff Smith, CIBC’s Vice President, Card Products. “Cash is the credit card reward that Canadians value most.
According to Statistics Canada after housing, Canadians spend more money on groceries and petrol than anything else so CIBC developed its Dividend Visa lineup to provide Canadians with enhanced cash rewards for these purchases. The CIBC Dividend Visa Infinite and Platinum Visa cards offer 4% cashback on petrol and groceries.”
Smith says the CIBC Tim Hortons Double Double Visa Card is designed for clients looking for instant gratification. “The rewards are earned on the card in real-time and can then be redeemed instantly at any Tim Hortons restaurant in Canada,” he says.
“We’ve seen considerable growth in our Aventura and CIBC Dividend Visa portfolios since the products were respectively re-launched three years ago and one year ago,” says Smith.
“As Tim Hortons is a well-loved Canadian brand, the CIBC Tim Hortons Double Double Visa Card resonates with various demographics including clients living in areas where there is little CIBC presence. In fact, nearly 60% of Double Double cardholders are new to CIBC.”
RBC
“The growth and momentum of our retail cards portfolio is very strong, “Athena Varmazis, RBC’s Vice President, Global Loyalty Programmes and Rewards tells CI. RBC ranks as number one in credit card purchase volume in Canada.”
In 2015, RBC had over 7 million credit card accounts and had approximately 23% of total Canadian credit card purchase volumes, according to RBC.
RBC had net credit card purchase volumes of C$90.8bn in 2015, up from C$84.2bn in 2014. Its average Canadian credit card balances grew from C$14,100 in 2014 to C$15,100 in 2015.
In 2015, RBC saw “strong account and balance growth in its Avion credit card,” its annual report states. “Avion continues to be attractive in the market and we continue to win new Avion customers,” says Varmazis. “We have a promise of any flight anywhere anytime, no points expiry and no blackout periods – if the seat is there, you can book it.”
“We offer flexibility as we aren’t part of any coalition loyalty schemes,” says Varmazis. “We secure valuable partnerships for our clients which offer benefits to them. For example, we have points redemption partnerships with the Apple Store and Best Buy Canada which let you buy products with a combination of cash and points from these retailers within our RBC Rewards e-mall.
“Other retailers’ products available in the e-mall include Burberry, Cuisinart, KitchenAid and Miele. We’re working on many more rewards redemption partnerships with retailers to bring a breadth of offers across our entire cardholder base.”
Varmazis stresses that RBC Rewards points don’t expire, which she says is good for cardholders who do not accumulate rewards points as quickly as cardholders in higher-spend categories.
Although RBC’s co-branded credit card deal with Shoppers Drug Mart/Pharmaprix has ended, RBC offers a co-branded MasterCard with Canadian airline WestJet. “We continue to look for retail co-brand credit card deals,” says Varmazis. “Our criterion is that these deals have to offer exceptional client value and client experience.”
RBC offers credit cards for all segments of the Canadian market. “We have entry-level credit card products and credit cards for new immigrants to Canada,” says Varmazis. “Our goal is to offer credit card products that are relevant to anyone whether they are travel reward-focused or focused on points for retail, or want cashback or use their reward points to pay off credit card balances.”
In October 2016, RBC launched the RBC Rewards app for iOS and Android, offering the same features provided on the RBC Rewards website’s functionality, such as researching and booking travel; buying Apple and Best Buy products with points and cash; and using points for RBC Rewards merchandise and gift cards.
Since December 2015, RBC Avion cardholders and other RBC Rewards members can earn twice the RBC Rewards points for every Uber ride paid for with their RBC credit card anywhere in the world Uber operates.
Shoppers Drug Mart
In June 2016, RBC and Canadian pharmacy chain Shoppers Drug Mart (which trades as Pharmaprix in Quebec) mutually agreed to end their co-branding relationship, which had enabled co-branded credit and debit cardholders to earn Shoppers/Pharmaprix Optimum rewards points.
RBC said that the RBC Shoppers/Pharmaprix Optimum Banking account and RBC Shoppers/Pharmaprix Optimum MasterCard are no longer available. According to CBC, RBC and Shoppers had 200,000 combined customers in their co-branding relationship.
RBC Shoppers/Pharmaprix Optimum MasterCard accounts in good standing were converted in October 2016 to a replacement RBC credit card account that doesn’t earn Optimum Points.
The background to the end of the RBC/Shoppers deal is the fact that in 2013 Shoppers was bought by Loblaw which has a strong MasterCard credit cards offer through its PC Financial MasterCard. Loblaw’s retail chain brands offer banking products including credit cards through President’s Choice Financial.
“We expect to see some consolidation across the customers who are common to Loblaws store brands and Shoppers,” Lovett and Huestis say. “So some PC Financial credit cards are likely to be offered at Shoppers, as Shoppers is already displaying PC Financial products. It makes sense that they would also offer a credit card giving PC Financial points or Shoppers points.”
National Bank of Canada
National Bank of Canada, the sixth largest Canadian bank, markets its MasterCard-branded credit cards right across Canada, Louis-François Poirier, Senior Manager, Credit Card Solutions and Payments at the Quebec-based bank tells CI. However, Poirier admits that National Bank’s primary market is Quebec and Eastern Canada including the Atlantic provinces.
In addition to its own credit card marketing channels, National Bank works with partners such the Canadian Automobile Association (CAA) with whom it launched the co-branded CAA Rewards MasterCard in May 2016 in all Canadian provinces except British Columbia and Quebec. The partnership involved National Bank acquiring the CAA’s credit card portfolio from Bridgewater Bank encompassing 42,000 cards across seven provinces.
“Our other credit card partners are MD Management which provides wealth management services for Canadian doctors,” says Poirier. “We have some white-label and co-brand partnerships with Investor Group and its Great West and London Life subsidiaries, and a co-branded card with the Ultramar petrol station chain.”
National Bank launched its À La Carte credit card rewards points programme in 2004. “The programme has flexibility,” says Poirier. “We give as many options to clients as possible, including a wide variety of merchandise, gift cards, upscale brands and access to a dedicated travel agency which offers advice and recommendations.
If they prefer, cardholders can just use their reward points to buy travel without using the dedicated travel agency. We also provide up to C$250 a year in reimbursement for luggage fees, parking at airports and seat selection fees.”
À La Carte allows cardholders to redeem points for investments in RRSPs (registered retirement savings plans) and TFSAs (tax-free savings accounts) and for redeeming their mortgages.
Scotiabank
In October 2015, Scotiabank acquired JPMorgan Chase’s Canadian MasterCard and private-label credit card portfolio comprising C$1.7bn in receivables and 2 million active customer accounts and the related credit card operations. Chase had issued the MasterCard-branded and private-label cards on behalf of Sears Canada under an agreement which ended in November 2015.
A Scotiabank spokesperson tells CI that, as of November 2016, no Sears Canada credit cards are in issue. Sears Canada cardholders were being converted to Scotiabank cards, the spokesperson said.
In May 2014, Scotiabank bought a 20% stake in Canadian Tire’s financial services business for C$500m. Scotiabank also provided a commitment to provide credit card receivables financing up to C$2.25bn to Canadian Tire’s financial services business. The agreement provides an option for Canadian Tire to sell up to an additional 29% of its financial services business to Scotiabank by 2024 at the then fair market value.
Amex Canada
In September 2016, Amex Canada launched Use Points for Purchases, which lets cardmembers redeem their rewards points towards virtually any purchase made on an eligible card. Amex cardmembers can redeem the rewards points via the Amex Canada website or the Amex Mobile app.
In October 2016, Amex Canada launched a new phase of its Realize the Potential brand marketing campaign, which was first introduced in Canada in 2009.
“We evolved the campaign both in terms of messaging and style, showcasing our digital and mobile services designed to make our cardmembers’ lives simpler, and presenting our brand in a more youthful, relevant and engaging way,” Amex says in a statement. “This is a multimedia campaign on TV, digital platforms, and social channels.”
