In a rare and quirky example of two card companies working with the same cobranding partner, Citibank U.S.A. and American Express Co. have both started issuing credit cards on behalf of Hilton Hotels, which found itself in the awkward position of having to honor two competing contracts after a corporate acquisition.
Normally, companies that cut cobranding deals with card issuers give them "category exclusivity" in the payment area, at least for marketing purposes. But Hilton Hotels, which had been working with American Express, last year bought Promus Corp., a hotel chain owner that had its own cobranding arrangement with Visa. Hilton kept both relationships, and Citibank just began issuing Hilton Visa cards this month. Citibank, which pledges primary allegiance to MasterCard, apparently found the opportunity to pick up a premier cobranding partner valuable enough to come forward with a major Visa program. Visa was eager to see its relationship with Promus continue under the stronger Hilton brand name. American Express may have wound up with the shortest end of the deal, since it no longer has exclusive rights to issue the Hilton card.
A Hilton spokeswoman, Jeanne Datz, said she did not know when either deal - the one with Visa, or the one with American Express - expired. Hilton has "absolutely no strategy to phase one or another out," she said. Hilton wants to maintain both relationships "absolutely for the long haul," she said.
"This will be the first time that Visa goes head-to-head with American Express, so it will be interesting to see what happens," said Bond Isaacson, executive vice president of sales and integrated solutions for Visa U.S.A., who was recently appointed chief executive officer of its Internet subsidiary, e-Visa.
When Hilton, which is based in Beverly Hills, Calif., paid $4 billion for Promus, of Memphis, it picked up a string of well-known brands - Embassy Suites, Hampton Inn, Doubletree, Homewood Suites, and Red Lion - and said that a benefit of the deal would be the ability to include the Promus brands in the Hilton HHonors frequent guest program. That program lets guests double both their frequent flyer miles and hotel credits in a trademarked arrangement that the company calls DoubleDip. More than 30 airlines participate in the program, and customers can register at any of the 2,000 hotels or on the Internet at www.hiltonhhonors.com.
Hilton guests who want to collect points through Hilton HHonors can now do so through a Citibank Visa card or the Hilton American Express card.
Hilton became the first hotel chain with a cobranded card in 1995, when it teamed up with American Express. When the merger with Promus brought the Visa deal into the mix, "It was a very positive move forward," Ms. Datz said. "It's OK to have more than one" card brand.
"The HHonors group is always looking to leverage HHonors and the benefits it affords, so a natural progression was to have a relationship with another significant credit card, and certainly Visa is the one," Ms. Datz said.
"It's giving the customers what they want," she added. "If you're on an expense account, you're usually on American Express. But if you're not, you'll put it on a Visa card."
Cardholder benefits - for both American Express and Citibank customers - include insurance, car rental discounts, and other travel-related perks, but Hilton says that the main attraction is the double points feature. Matching airline miles to hotel rewards points is "the most sought-after benefit in the frequent-guest-reward arena," according to Jeffrey Diskin, head of the rewards program for Hilton.
Both American Express and Citibank give cardholders 7,500 points for signing up. Neither card carries an annual fee, but the interest rate on the American Express card is considerably higher. Citibank does not charge interest for the first six months, then sets the rate at prime plus 5.9%, which would be 15.4% at today's rate. American Express has no special introductory rate, and charges prime plus 9.99%, bringing the current APR to 19.49%.
Mr. Isaacson of Visa predicted the price difference would influence consumers' choices. "The question is, do you want to carry over a balance or not?" he said. "If you're only going to use the card at Hilton, you might not care about the interest rate. If you're going to use this card for other purchases, you will."
The Amex Hilton card does let people accumulate more points than the Citibank Hilton card. American Express customers earn three points for every dollar charged, whereas Citibank customers earn only two points. For every dollar charged at a Hilton-owned hotel, American Express cardholders get five points, whereas Citibank cardholders get three. The DoubleDip feature means that American Express customers also earn more airline miles (in addition to hotel credits) than their Citibank counterparts.
Unlike the Citibank Hilton card, the American Express Hilton card gives its holders automatic membership in a club, Hilton's HHonors Silver VIP program, which helps them earn free hotel stays, vacation packages, and airline and retail discounts. American Express would not comment on Citibank's Hilton card.
American Express is playing up its card's online features. As with all American Express cards, customers can view their statements and pay their bills through the Internet, can download their account information into Quicken or Microsoft Money, and are protected from any liability for fraud when they shop online.
Citibank's Hilton card offers the same features, but the company is emphasizing instead its practical benefits for travel, such as auto rental and travel accident insurance, and medical and legal referrals.
With the Hilton card, Citibank is relying on a string of successful cobranded products to try to enlarge its customer base. Citibank's highly selective list of cobranding partners includes AT&T, Sony Entertainment, and American Airlines. American Express works with Delta Airlines, Sheraton Hotels, and Costco. Citibank's American Airlines AAdvantage card, which it calls "the most successful cobranded card in the industry," is issued in 16 countries.
Citibank also issues the popular AT&T Universal MasterCard, and says that its April 1998 acquisition of AT&T Universal Card Services Corp. in Jacksonville, Fla., increased its market share in the United States from 11% to 15%. A card Citibank once issued with Ford Motor Co. was phased out and replaced with an all-purpose auto rewards card called Driver's Edge. Citibank even issues a card with a nonprofit organization, the American Cancer Society.