Macy's Inc. today announced that American Express Co. will replace Visa Inc. this fall as the card network supporting its Bloomingdale's and Macy's cobranded credit cards.
Citigroup Inc., which purchased Macy's credit card receivables from the retailer in 2005, issues its private-label and cobranded credit cards and will switch the brand to Amex.
The move is a positive for Amex, which is pushing to expand overall card acceptance and to increase the volume of transactions processed on its network, analysts say.
Amex's new role with Macy's suggests renewed competition among networks to process transactions, and it underscores Amex's desire to expand its reach, Beth Robertson, director of payments research with Javelin Strategy & Research, tells PaymentsSource. "American Express has had a reputation of being less widely used, but they have been trying to change that," she says. "Clearly this deal is an indication of Amex's desire to expand overall usage and acceptance."
The card company also processes transactions for dozens of other cobranded cards issued by third parties, including 46 cobranded airline cards issued by various banks around the world. In the U.S., Amex is the processor for several cobranded cards including Fidelity Brokerage Services LLC's Fidelity Rewards card issued by FIA Card Services and the Universal Studios cobranded card issued by General Electric Co.'s GE Money unit.
Amex likely offered Citi and Macy's a more-attractive merchant-fee deal versus whatever Visa offered, Brian Riley, research director with TowerGroup, tells PaymentsSource "The parties obviously negotiated some kind of interchange deal that works for everyone," Riley says. Amex declined to comment on details of the program.
The retailer's contract with Visa was due to expire this fall, and after reviewing all the options Amex provided "the best opportunity to benefit Macy's," a Macy's spokesperson says. Citi will mail Amex replacement cards to Macy's Visa cardholders by the end of the year, and Macy's says cardholders will see no changes in credit limits or in the ongoing Bloomingdale's Insider and Macy's Star Rewards loyalty programs attached to their cards.
Visa's exit from Macy's also suggests more trouble is brewing in cobranded card programs, Riley says. "Profit margins are thinner, and as issuers are under increasing pressure to make programs work, a lot of cobranded cards must be renegotiated," he says.
Visa is losing its role in another high-profile cobranded card program today, when JPMorgan's co-branded Starbucks Duetto card program ends.