Costco cards boost Citi

Jaime Toplin
CC Sales

BI Intelligence


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Citi posted better-than-anticipated Q1 2017 results, and some of that strong performance, particularly in the firm’s North American consumer banking division, was driven by its portfolio of 11 million Costco cards that it and Visa purchased last June. 

Here’s why Costco’s impact was so meaningful to Citi:

  • Branded cards growth is outpacing the rest of the division. North American consumer banking revenue, which hit $4.9 billion in Q1 2017, grew by just 2% annually. The branded cards division, which accounts for 42% of the segment’s revenue, posted a much larger 13% growth rate in the same period.
  • Costco is the primary driver of gains in branded cards, according to Citi. The firm didn’t provide updated spend statistics or cardholder figures for Q1. But for reference, Citi has previously noted that the portfolio saw $52 billion in billed business in its first six months, putting it on pace to outperform its prior year under Amex, where it posted $80 billion. In its Q1 call, Citi noted that the firm is pleased with Costco’s performance, which points to ongoing success. 

The segment is worth keeping an eye on. The vast size of the Costco portfolio is propelling Citi’s year-over-year (YoY) growth in the cards division. But Citi counts this growth as inorganic. Now that the transaction is completed, Citi must encourage organic growth in spend in its portfolio. As consumer credit appetite grows, it’ll be worth watching whether or not Citi’s strong rewards promote ongoing gains in spending and how the firm works to acquire new customers.

Retailers like Starbucks and Dunkin' Donuts are winning over consumers with their mobile wallets — apps developed by stores to make it easier for their customers to pay, and to deliver valuable perks. 

And these retailer wallets are leading the overall mobile wallets industry, thanks to their ability to rapidly push out innovative features like rewards programs, coupons, mobile order-ahead, and custom marketing.

This may be surprising considering that retailer mobile wallets can be used only at a specific retailer’s locations; in contrast, popular universal mobile wallets like Apple Pay and Samsung Pay can be used at multiple retailers, as long as users are using the necessary smartphones.

Ayoub Aouad, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on retailer mobile wallets that assesses what makes them so successful and which retailers can most effectively leverage the technology to push sales, traffic, and average ticket size. The report also outlines what makes these mobile wallets attractive, and discusses some of the advancements being made in the payments industry that will affect mobile wallets' growth rate.

Here are some key takeaways from the report: 

  • Retailers with large addressable user bases who are loyal, repeat visitors, will see their mobile wallets continue to be popular with consumers, especially as there continues to be slow merchant adoption of near-field communication (NFC) technology as well as weak offerings by universal mobile wallets like Apple Pay and Samsung Pay.
  • Loyalty programs will be a significant driver in retailer mobile wallet adoption. Companies like Starbucks and Dunkin' Donuts have been able to leverage their loyalty programs to acquire mobile wallet users, which, in turn, has driven store traffic and conversion rates.
  • By leveraging these programs, sales are expected to grow at a five-year compound annual growth rate of 68%.
  • However, adoption will begin to decelerate as a result of increased competition by 2020. As universal mobile wallet players begin to add effective loyalty programs and coupons to their offerings, adoption for retailer-based mobile wallets is likely to slow down because these offerings are their main marketing points. 

In full, the report: 

  • Explains what hurdles universal mobile wallets have faced.
  • Details what features retailers have adopted into their mobile wallets that have been successful  
  • Analyzes the use cases of retailers that have successfully leveraged their mobile wallet offerings to push growth.
  • Identifies how universal mobile wallets will eventually slow growth for retailer-based mobile wallets.

 Interested in getting the full report? Here are two ways to access it:

  1. Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> START A MEMBERSHIP
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