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Citi, other card issuers vie for wallet position through amped-up rewards programs


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Citi, other card issuers vie for wallet position through amped-up rewards programs

's new co-brandedCostco Anywhere Visa card and a new package of incentives associated with theSynchronyFinancial-issued Walmart Credit Card represent the latest offeringsin an increasingly competitive market for credit card rewards programs.

Theeagerly anticipated co-branded Costco card, which is intended to replace theTrueEarnings card issued under a longstanding — but soon ending — partnership betweenthe warehouse club and AmericanExpress Co., strikes a competitive balance between the rewardsoffered through the co-branded cards of Costco's direct rivals. It also isstructured in such a way as to create an incentive for Costco members to usethe new card over other Visa rewards cards they might have in their walletswhen paying for in-club purchase.

Citirecently informed holders of the existing Costco co-branded card that they canbegin using the new card, which they may receive as early as May, on June 20. The bank plans toacquire theexisting portfolio of Costco card loans from American Express as part of thetransition. Citi officials had previously indicated that the sequence of eventswould help ensure as seamless of a transition as possible for Costco customers.

Severalof the categories of rewards associated with the new card compare favorably tothose that had been part of the TrueEarnings card for the past several years.The Anywhere Visa will offer 4% cash-back on eligible gasoline purchases up toa maximum of $7,000 per year. The TrueEarnings card offers 3% cash-back on upto $4,000 of gas purchases. The new card offers 3% cash-back on restaurant andeligible travel purchases, 1 percentage point above the comparable cash-backreward associated with the existing card. And while the TrueEarnings cardoffers 1% cash-back on other purchases, including those made in Costcolocations, the Anywhere Visa will provide a 2% reward on purchases made inCostco stores and on the company's website.

Thatfeature helps address a question Citi CFO John Gerspach fielded during anappearance at a December 2015 investor conference to the effect of how thecompany could maximize in-store spend on the new card, given the potential forCostco customers to use other Visa cards they might hold.

"Whatwe want to focus on are people that are actually very loyal to Costco andtherefore are interested in gaining the Costco rewards," Gerspach said,according to a transcript of his remarks.

"Soyou are quite right that anyone with a Visa card can use that card in Costco,but they will not be getting the Costco rewards," he added. "For us,we think that the real value proposition that we can offer in conjunction withCostco is actually focusing on those customers that are Costco members that …are interested in generating additional rewards. And we will be able to offerthem a value proposition which should be compelling."

Thecash-back rewards payable to holders of the TrueEarnings card come annually inthe form of a certificate redeemable only at Costco locations. Citi indicatedthat rewards earned on the American Express card through June 19 will betransferred along with the account, and they will be paid out in the form of acertificate to be distributed in February 2017.

Therewards structure of the Anywhere Visa also might cast doubt upon the effortsof American Express to retain spending from Costco card holders once thetransition takes place. American Express has been directly marketing variousproducts, including the Blue Cash Everyday card, as replacements for theTrueEarnings card. A 3% cash-back reward on purchases at U.S. supermarkets anda 2% reward on purchases at select department stores would appear to representthe primary competitive advantages the Blue Cash Everyday card maintainsrelative to the rewards offered by its new rival.

"Wewill work very hard to compete for those customers' loyalty," said JeffreyCampbell during the March American Express investor day, according to atranscript of hisremarks, adding that Costco members "do 70% of their spending out ofstore."

Theintroduction of the Anywhere Visa represents the latest in a series of new orenhanced co-branded cards rolled out in the warehouse club space in recentyears.

AtCostco competitor Sam's Club, a co-branded MasterCard issued by since offers rewards of 5% oneligible gas purchases of up to $6,000 per year, 3% on dining and travel and 1%on other purchases.

unitComenity Capital Bankoffers a suite of BJ's Wholesale Club co-branded MasterCards that reserve thehighest tier of rewards for in-club purchases. The BJ's Perks Plus card offers3% cash-back on in-store purchases; the BJ's Perks Elite card, which requiresan annual membership fee of 2x the baseline cost of $50, pitches 5% cash-backon in-store purchases. Both cards offer 10 cents-per-gallon rewards on gas purchasesfrom BJ's and 2% rewards on gas purchases made elsewhere as well as 2% rewardson dining.

BothCiti and Costco had been reluctant to publicly reveal the features of the newco-branded card prior to the recent communication. While the transition hasreceived considerable attention due to the sheer size of the existingportfolio, it is hardly the only example of issuers and retailers strategizingto develop competitive rewards cards.

Synchronyannounced March 31,for instance, that it and Wal-Mart Stores Inc. would introduce a new rewardsprogram for existing holders of the Walmart Credit Card. The program alsoapplies to the Walmart MoneyCard, a prepaid card issued by

Knownas 3-2-1 Save, the program pitches 3% cash-back on purchases made, including site-to-store orders, as well as 2% back on fuelpurchases at Walmart or Murphy USA gas stations and 1% on other purchases.Existing holders of the credit card were to be automatically enrolled in theprogram, effective April 1.

Theprevious rewards program associated with the Walmart Credit Card offered $5back for every $500 spent and savings of up to 5 cents per gallon atparticipating Walmart gas stations. The features of the new rewards programcomplement the retailer's broader e-commerce push.