The Next Gen of Rewards and Loyalty Programs: The State of Credit Cards and Travel Rewards Co-Band Relationships, and Their Future

This panel will explore the nature of co-brand relationships with travel providers. What does the future look like as travel recovers and exceeds pre-pandemic levels? How can co-branded cards compete for market share with branded travel rewards cards? Credit card journalist and expert Jason Steele explores these issues with his panel of executives from card issuers and travel providers.

Transcription:

Jason Steele: (00:07)

Well, welcome back to the last, I think it's the last presentation of the evening, or maybe of the afternoon, or maybe I think there's one after us at 4.30, I forget. But this is gonna be the highlight of your day I promise you. We have two great people here. Unfortunately we did expect a third on our panel, but he was unable to make it due to some personal circumstances. So, but let me introduce the two people we do have here. We have Brett Smallwood, who's the head of cards for built rewards, which is a very innovative company that I'm sure he's gonna tell us a little bit about, and Mark McGee, who is the director of loyalty and brands in America's franchise at Hyat. And mark knows this, but I will confess that I'm a big Hyat fanboy despite our current location.

Jason Steele: (00:54)

So today we're gonna talk about the next generation of rewards and loyalty programs, specifically the state of credit cards, travel rewards, cobranded relationships and their future. That's a mouthful, but when I tell people that I work writing about credit cards all day and if you haven't met me yet, my name is Jason Steele and I am a journalist since 2008. I've written for over a hundred outlets. My claim to fame is I was the first contributor to the point sky. I write mostly about credit cards and travel awards. I also consult for FinTech companies and credit card issuers and I produce a conference called Card Con, which will be in the fall in New Orleans this year, for its sixth year. So, as I was saying, when I talk about credit cards, I tell people I'm a credit card writer.

Jason Steele: (01:42)

They immediately assume it has to do with travel awards. And certainly that is where my passion is. And I think the travel awards kind of offer that aspirational reward. You know, people in the dead of winter, they look out their window and they dream of that trip to Hawaii, that trip to the Caribbean, maybe in the summer, they dream of a trip to Europe, something like that. And having those credit card rewards allows them definitely to dream it and often to actually achieve it. So let me start with just some brief introductions. I don't know if you wanna go first Brett and then Mark just tell us a little bit about who you are, who you represent and what you're doing here.

Brett Smallwood: (02:22)

Sure. Brett Smallwood, as Jason mentioned, head of card at built rewards, built for those of you who don't know, is a relatively new FinTech and PropTech. We are a loyalty program for the real estate industry. So we partner with 30 of the top 50 property managers and developers across the country to offer a loyalty program to their tenants and we offer a co-branded credit card with Wells Fargo, both of which allow renters to pay their rent and earn rewards for something that today they're getting nothing back for besides kind of the place to live. So, we've developed a series of partnerships, including with Hyat on the transfer side. So a whole bunch of one to one transfers across some of the traditional loyalty partnerships in the travel space in some kind of newer spaces that speak to our demo. So fitness, we have partnerships with SoulCycle, Rumble, Y7, a whole bunch of fitness class providers like that. And then it's the first of its kind program where you can save your points and use it towards a mortgage down payment down the road, if that's down the road for you.

Mark McGee: (03:33)

Yep. And as Jason said, Mark McGee. I support at brands and loyalty operations for our America's hotels at Hyat. If you're not familiar with Hyat, we operate 26 brands across about 70 countries now, just crossed 1,150 hotels earlier this year after we had a big acquisition at the end of last year acquiring Apple Leisure Group, which brought in six additional all inclusive brands, a hundred properties across mostly the Caribbean and Mexico. If you're looking for the next vacation, they're fantastic resorts. I highly recommend them just a little shameless plug, but my role is really sitting within our America's organization, working with our owners and operators of our properties to really strategize and figure out how we can extract most value from our loyalty program. We have a little over 30 million members in our program globally.

Mark McGee: (04:20)

Primarily, a large portion of those sit here in the US, and it's really our biggest growth driver. As we look at how do we continue to grow our portfolio of hotels, the more we can grow the loyalty program, the more we can develop relationships with our members increase both their penetration, their stays at our hotel, their frequencies, the more attractive we're gonna be to owners, developers of properties to continue to increase our footprint, and then obviously operate in more areas that our guests are looking for across our 26 brands.

Jason Steele: (04:53)

So Brett didn't tell you, I'll let you know if you don't know, Built just launched a co-branded credit card with my friends over at Wells Fargo. And so, I wanna ask him what are the key ingredients to a successful co-brand relationship and also how do these relationships fail?

Brett Smallwood: (05:11)

Sure. So I think, we're very very lucky and very excited about the partnership with Wells Fargo. I think as you can imagine, a lot of it comes down to right time, right place, right circumstances. And I think for Wells Fargo, as you look at where they are strategically and not to speak for them, their CEO has talked about this publicly, but they are under indexed on credit card, relative to their major bank peers in the US. And so they are looking to double down in the space, they're building a whole suite of solutions that are branded Wells Fargo that you may have heard Chris to speak about earlier. And I think looking for new opportunities to compete. And when you think about that in the co-brand space, there's a whole bunch of traditional co-brand relationships that have been out there for decades in many cases that are also locked up for in many cases, decades at sort of the minimum five years.

Brett Smallwood: (06:05)

So if you're trying to enter that space while you are of course competing for those same sorts of relationships with the other big banks out there, you're also looking for the new opportunity. And I think for us at Built and for the folks at Wells Fargo, it was the right time and the right opportunity, I think what makes it, and we hope will make it successful and it's been a great partnership so far is that alignment of kind of vision and interest in the program and the commitment to the program. So, Built as a startup needs kind of that complimentary vision from the big bank partner. It's easy to lose sight of a small company and a small portfolio that's starting out at a large bank. So it needs people who are committed as the folks who run in on the Wells Fargo side are I think in terms of what could make a partnership fail.

Brett Smallwood: (06:53)

And going back prior to build have advised a lot of the major private label and co-brand card issuers in the country and the places where you see them fail are when there isn't that alignment, whether it's because the scale of the portfolio, isn't large enough to be interesting, whether because the economics aren't, or there's just not strategic alignment on both sides. And that can be in the case of the retailer with the senior management, not really caring about the card program and not interested in investing in it, or it can be with the case of the bank feeling like they need to tighten their credit box or whatever it is that doesn't quite fit the needs of the retailer. So I think it's really important to have that alignment to be successful.

Jason Steele: (07:33)

As someone who covers credit cards all day long for a living, I know that in addition to the build card, also one of the major new co-brand relationships that happened in the last year was a Hyat business card with Chase. So, we hope it'll be a successful co-branded relationship. I certainly have the card, but what's your perspective on what makes a successful cobranded relationship and also, what does make these relationships fail?

Mark McGee: (07:56)

Yeah, so I can speak to both the launch and the new card. And so, we've been partners with Chase for 10 years, almost over 10 years now, since we initially launched our high credit card, our first version of our consumer credit card, the worldwide business credit card is about six months old now. So it's our newest product. We now have a portfolio of two credit cards. But in terms of what makes successful partnership, we really see it as an alignment of objectives. And I know that may be oversimplifying things, but it's really making sure that both parties are adding incremental value to the organization that we really can't find elsewhere. And I guess I'll give you an example where, it's no secret that we are probably one of Chase's smaller co-brand cards, especially in the hospitality space.

Mark McGee: (08:42)

They have cards with Marriott, with IHG, major airline cards. If you look at the travel space with United and Southwest. And from a sheer volume standpoint transactions, charges like, we'll never compete with that scale just because we don't have the size portfolio, but where we do add a lot of value is, the alignment of our core customers when there's a lot of overlap there. But we operate exclusively in the upper upscale and luxury space. So bringing that offering to both their bank customers, across their different products, allowing them to, you know, have a second or third product that is the higher product. And then the transfer partnership that we have with ultimate rewards, there's significant value on both ends. One, giving Chase the opportunity to allow their freedom, their Sapphire card members, to transfer points to get some very high end, reasonably priced redemption stays.

Mark McGee: (09:38)

And for us, it's a great acquisition channel for new card members to our world high loyalty program who may not have otherwise stayed with us in the past or, who have not been exposed because we don't have the same scale or platform. So while the obvious, the economics have to make sense, I think, when we looked at 10 plus years ago where our gaps were in growth, it was really having a partnership that can help get us that exposure and not just from an awareness standpoint, but really from a membership, a booking and a revenue that's gonna help drive the growth of our program. And we've really seen the co-brand as one of our largest growth drivers that's directly impacted the loyalty program and then subsequently, the downstream effect that I mentioned of the larger our loyalty program is the more attractive we are to owners and developers that are gonna build more hotels. And I think hopefully if you've tracked some of our growth in the last five years, you've been able to see the scale at which we've been able to expand and largely because of a partnership like this.

Jason Steele: (10:40)

You know, sometimes from our perspective as journalists and award travel enthusiast, it appears as if a company like Hyat offering this co-branded card through chase is also being competed against by branded cards or non cobranded, however you like to term cards like the Saphire or in this case, on this stage right here someone could get the Built card and if they're Hyat fan, they could transfer their points to Hyat. How is that complimenting you rather than competing?

Mark McGee: (11:07)

That's a great question. So I guess from a transfer perspective, so we've got two transfer partners that you can transfer their currency into world high points, one being chased through ultimate rewards. The other one being Built. We view those as very valuable acquisition channels to really drive incremental business that otherwise would not have come our way. In terms of the card competing, there's a degree of that but I'd say it's much smaller than most people would think. It's our opportunity and our kind of imperative to position our card specifically target the Hyat loyalists that we know that this is gonna create a differentiated value. So just to give you some examples, we add additional benefits on the card that cannot be offered on any other card product. The point is one piece that you can get from Built or from Chase ultimate rewards, but we give our entry level status.

Mark McGee: (12:00)

We give tier night credits towards status based on spent. So the additional incentive that, if you're doing a one time vacation a higher property, maybe you don't see the value in the card, but if you think you're gonna have multiple stays, it adds significant value on each one of those stays and helps you achieve status faster. It also helps you achieve recognition at the property. And I think that's something that we've always known that's valuable, but as we see how people wanna travel after coming out of the pandemic, how much more important these experiences are. We make sure that our front desk goes above and beyond to recognize our card holders, to thank them for their loyalty, to try to upgrade with them, when they can. So we build that value into the card product to help us differentiate in what is a very crowded marketplace.

Jason Steele: (12:47)

Thank you. Brett, when I first heard about the Built card, I was a little bit incredulous until someone explained to me, what I think is a secret sauce is that they're not charging the tenants or the landlords that merchant fee. And I think it was with you or one of your colleagues. I said, how is this possible? How can you do this? And the answer had to do and this is something we alluded to in the previous panel, was the demographic that you're going for a younger demographic. Obviously people younger demographics might be more likely to rent and own later. Maybe you could tell us a little bit about that. What the strategy is there and how you see the previous panel was appealing to about appealing to Gen Z. What's your take on that as a card issuer or provider that's really going after that market?

Brett Smallwood: (13:39)

Yeah. So I think one of the things we're excited about and have built a program that speaks to a younger demo. I think that is an attractive aspect to many partners. It was attractive to Wells Fargo and partnering with us and it's also attractive to a number of the loyalty partners. And in many cases, if you look at some of the major airline loyalty programs out there, the average age or median age is generally in the fifties and if you look at Built, it's about 30 years old, so it's a very different kind of demographic and access to a different type of customer. I think on the economic side to where you started the question, I think a lot of the credit card space and game is a little bit of game of arbitrage. And you have some portion of your customers that are highly unprofitable.

Brett Smallwood: (14:25)

Many of the folks like yourself Jason, who know how to game every card and use it in the way that drives the most value for them. And you have a different portion of your population who are highly profitable and drive a lot of the economics for the card program overall. I think we tried to make a card that speaks to that broad sort of range and spectrum on rent. One of the nice things with our relationships with the landlords that I mentioned is that our customer acquisition costs are very very low. And so, as opposed to paying traditional media channels and investing significantly in normal customer acquisition channels, we can reinvest that in giving rewards to our customers. So we view rent and points on rent as somewhat of a loss leader and a way to give economics to customers, to incentivize them to join and then acquire those customers and be able to sell a whole bunch of other products to them and provide services to them that are relevant.

Jason Steele: (15:30)

Okay. One of the things as an observer, and I've always wondered is how do these co-branded relationships develop? And I have jokingly suggested that there's an app and when one brand sees another, they swipe, right? And they connect and have this co-branded relationship. I know it doesn't work quite like that, but maybe you can give us the real story.

Mark McGee: (15:49)

Yeah. I can start. So, it was prior to my time at Hyat when we launched the initial relationship with Chase. But I can speak more towards the credit card that we launched last year, the business card. As you can expect the two to three year process of really trying to determine what is our strategic path forward to grow this relationship? We have our five year plan, goals we wanna achieve, but at some point the portfolio, because unless you're reinventing adding new benefits, there's becomes a steady state to sort of continue to grow that new products are extremely important. So what drove us to launch a small business card is, when we really looked at kind of where the gaps are with our consumer card. I would say, I think compared to our hotel competition, we over index in business travelers, we operate a lot of large convention hotels, a lot of urban locations.

Mark McGee: (16:47)

We knew we already had a sizable small business component of our program that serves them. So we saw this when we kind of looked at, you know, is this something, do we go with a premium luxury card that's competing with your AMEX platinum, your Chase Sapphire preferred, do we go in no fee? Is it a debit card? And when we looked at all this suite of products out there, it was clear after just a few days of analysis to say, okay, the small business card is the route we want to go. Now we could have taken that to RFP and said, okay we wanna see what the best deal is that we can get. But again, the 10 years that we've been in a relationship with Chase, we've really felt that the entire time they've had our interest align that as they've grown their card business considerably. I think it's only helped grow our portfolio again because of the acquisition that we're getting through a channel like ultimate rewards.

Mark McGee: (17:44)

But as Chase has continued to invest in the experience and the travel space, I think that they've gone after those customers and who may not have been aware of high previously. So it was an enjoyable process to kind of go through developing the whole product. But yeah, looking back, I don't think we have any regrets that we didn't choose to entertain or as you would say, go on the dating app and see who else was out there because the relationship had been built over so many years and was extremely strong.

Jason Steele: (18:15)

Well, Brett has a different perspective obviously, as company is new. They are on their first co-branded relationship. Maybe you could tell us how that got started, or if you prefer, tell me a little bit more about your background in general, how these relationships get started.

Brett Smallwood: (18:30)

Yeah. No, I wish there were a dating app. So if anyone out there is looking to start a company, that'd be immensely helpful. At the end of the day, it was sort of hitting the pavement and pitching it to every issue where that was out there. I think we knew as a FinTech, that it's a hard model to play if you go it alone as a FinTech and there are many startup card issuers out there who are doing it themselves and starting with their own balance sheet and raising capital every six months, try to fund it, trying to develop expertise in all the things that banks are good at both in terms of funding, but credit underwriting, fraud, risk management, etcetera. So I think, we recognized quickly that wasn't the right path for us.

Brett Smallwood: (19:16)

And we spoke with almost every issuer out there. I think it came back to kind of where I started the comments and where the panel started about finding the partner that kind of was aligned in the vision that was interested in what Built could bring to the table as part of the partnership and that was willing to commit the resources and invest and to some degree take a risk in doing so. So I think for us, it was kind of the traditional, it wasn't the RFP process that maybe a large merchant would put out there. It was more kind of pitching, but it was all about finding that right partner that kind of shared the vision.

Jason Steele: (19:53)

Great. Well, I wanna talk a little bit more about the future of co-brands. We were supposed to have a representative from Barclays. They seem to have, I think two, at least two or three dozen co-branded relationships virtually every cruise line. I think they have in their stable. Do you think the market could be oversaturated? I mean, where do you think this co-brand trend is going?

Brett Smallwood: (20:16)

Yeah. I'm happy to start. I think certainly it's important. And I think one of the things we've seen since launching the card with Wells Fargo is it's really important to have a product that speaks to the customers that are trying to acquire. So having a value prop that's different than some of the other value props out there, that's unique is very helpful. I think on the co-brand side, a lot of what co-brand is having a captive audience and selling them a credit card product that in many cases look similar to other credit card products that are out there, but it's for your brand and for your customers who are very loyal. I think that market is here to stay. And there are plenty of brands who have loyal customers who can provide a lot of value to them through a co-brand card. I think you do see interesting things happening in the FinTech space with increasingly customized and nuanced cards platforms like Marketta help more and more FinTech standup card platforms every day. So I think it's interesting and they are trying to watch certainly. But I think if you want to drive the most value to the issuer and to the platform providing it, you have to, at the end of the day, provide something that's a little bit different.

Jason Steele: (21:30)

What is your perspective on the future here?

Mark McGee: (21:33)

Yeah. Looking at the travel space specifically, I think it's more important now than it's ever been especially if we look at the past few years, when we go back to March of 2020, when the world shut down, we closed 90 plus percent of our hotels horribly overnight which in our industry doesn't happen. A hotel stays open 24/7 holidays snowstorms, you name it. We reopen as quickly as we could in as many markets as we could, but the loyalty program and specifically our co-brand was the main way that we had to stay in touch with our guests and our relationship and to continue to give them an opportunity to engage with our brand, communicate to them, given that we have permission to communicate. So, from a purely customer experience standpoint, a hundred percent I think it's imperative to our growth that this move remains strong.

Mark McGee: (22:28)

And I think we've seen it in the results. I can't share any specifics, but we've seen record numbers this year. And I think that speaks to one, the pent up demand that I think we all have for travel. We've seen that when you're locked in your house for two years, you'll go anywhere. Right? That's basically, that bucket list that we all had is actually becoming real, I think. And we see that in our redemptions, we see that in our paid stays rates, maybe this isn't the very audience, but rates are as high as they've ever been at most of our locations. So, I think we really see is that that co-brand is a tool to continue to grow that. And that will continue to grow as a byproduct of just the trends that we're all seeing.

Jason Steele: (23:12)

That leads perfectly to my next question. I mean from today, if we can look back on the pandemic and hopefully it's just a pause. It's a footnote. I mean, travel is roaring back, but are there any permanent takeaways in terms of travel and travel rewards and these co-branded relationships that you think we're gonna look back on and say, yeah, it was this way before the pandemic, but after that, since then, it's been this way.

Mark McGee: (23:40)

Yeah. I think from our standpoint, it gave us the opportunity to really try a lot of different tactics, initiatives, promotions that would not maybe have gotten approved otherwise, because we were, I don't wanna say we were desperate, that's maybe a bit too extreme, but we're looking to see anyway possible. We can convince somebody if you think it's safe to come back out and stay with us and we'll take care of you. So we ran a number of promotions. You told him earlier about, we'll give you double nights towards status. We'll give you status nights towards next year. Things that I think pre pandemic we would've never done. And I think those proved out to be super successful at much lower cost than I think any of us would've imagined. So yeah, I think if anything, it's shown us that, God forbid something of that were to happen again and affect our business, but the loyalty program and the different components that our members see value is our core way to survive through those difficult times.

Jason Steele: (24:40)

Do you see permanent takeaways from the pandemic?

Brett Smallwood: (24:43)

Yeah, I guess I would add. I think from a kind of card perspective as you go through some of these cycles, seeing the importance of the card programs and the lenders behind them in many cases to the travel programs they're partnered with, is always interesting and kind of sobering I think. The lines of credit and the funding that many banks who traditionally wouldn't be in that space like American express made to some of their travel partners is always a helpful reminder of the importance of the programs to both parties. I think from a consumer perspective, I don't have any particular insights to the data from Built given we're so new, but I think at the end of the day there are long sort of cycles.

Brett Smallwood: (25:28)

And I think when you're in the moment, it's easy to think that something's better than it probably actually is when you look back in 10 years or worse than it probably actually is when you look back in 10 years. I think obviously travel dropped significantly during the pandemic. I think we're seeing on the consumer side, a snap back and some level of revenge travel. You see many people continued to use their cards saved up. I have a friend with 800,000 Amex points that he saved up over the last several years. A real opportunity and importance of these programs and of travel over the next year. But I think long term, I took a flight the day the judge made the ruling that you didn't have to wear masks. And how quickly people ripped the masks off their face and the airport went back to like it was pre pandemic. I think was for me telling that over a long period of time, I think consumers are going to value the same types of things that they did. Travel will be important and there's some bumpy period that we've been through and we'll continue to go through as things go back to normal but I don't see there being dramatic kind of step function changes long term.

Jason Steele: (26:41)

I was certainly one of those people who spent the pandemic earning points and miles and in preparing for this event, Bob Highland of Barclay's mentioned that they didn't even see their spending go down on their travel rewards cards that it stayed strong. And that was maybe contrary to my experience with my editors who, when I pitched travel rewards stories said, looked at me like I was crazy and said, nobody cares about travel rewards in the summer of 2020. So I was kind of gratified to hear that I was actually right, that people were looking forward to that day when they could return to travel and I think that that day is here. That said, we just have a couple minutes, but I would love to get some questions from the audience. If you have any questions for my panelists or myself. Anything about co-brand. Well, unless there's something either of you would like to add. Yeah. Well, people are shy and that's okay. And I'm sure all of us will be happy to take your questions later on if you want to meet up with us at the reception. And I really wanna thank Mark and Brett for coming out here and sharing their knowledge on co-brand relationships and travel awards.

Brett Smallwood: (27:58)

Thanks everybody.

Speaker 4: (27:59)

Thank you.