Amex planning international expansion with Loyalty Partner
Acquisition of Payback operator will provide opportunities in mobile and location-based applications
American Express is planning to use its recent acquisition of Loyalty Partner to drive further international expansion.
The credit card company says it will move the business of Loyalty Partner – operator of the German Payback coalition loyalty scheme – into new markets.
“Loyalty Partner’s coalition-based model is distinct from our own highly successful membership rewards program,” Amex vice chairman Ed Gilligan said in a conference call discussing the US$600m December 2010 acquisition.
“We see them as complementary pieces. We will continue to expand membership rewards around the world to drive card member spending and loyalty. At the same time, we will expand Loyalty Partner’s coalition model into additional countries, capitalize on opportunities to offer American Express products and services to Loyalty Partner customers, and work together to develop new premium-tier product offerings.”
Amex says it also sees opportunities to “go mobile” with the Payback coalition loyalty model through location-based applications, virtual currencies and couponing, as well as other digital applications. Traditional definitions of the payments industry are changing, and the card company says that increasingly, consumer decisions about where to shop and how to pay are based on loyalty offerings, particularly in these value-conscious times. Many consumers use rewards as a virtual currency.
Amex has expanded its own membership rewards program into pay-with-point options recently at websites such as Amazon.com, Ticketmaster and Zynga.
The acquistion shows the increasing attractiveness of the loyalty space to businesses beyond technology vendors and data companies, with a major payments player like Amex now positioning itself in the sector.
As well as operating the Payback scheme in Germany and Poland, Loyalty Partner provides market analysis, operating platforms and consultancy services. Amex is hoping to use this expertise to become a service provider in the retail sector where it has little previous involvement.
Amex is also looking to broaden its revenue mix, especially with its core consumer credit offering expected to yield less revenue and less demand over the near future.
Amex will get the chance to acquire customers beyond its typically upmarket cardholder base. It says that in markets where LP operates, such as Germany and India, it will look at co-branding opportunities with the coalition currency to get its card products into the hands of many more consumers than it currently has in those markets.
The card company estimates that around a third of Payback cardholders in Germany could fit its customer profile. In India (where Loyalty Partner is the majority owner of the i-mint coalition scheme), it says there will be a smaller proportion of suitable customers, with a lot of those coming from the scheme’s financial institution partner ICICI Bank.
Alexander Rittweger, the founder of Payback who will remain as CEO of Loyalty Partner after the merger, said Amex and LP have shared aims of internationalization and growth.
“The synergies that this deal creates are plain to see,” said Rittweger. “LP are enhancing and extending the global customer loyalty program of American Express by bringing on board the expertise that it has gathered over more than a decade. And together, we can use our loyalty, customer and network know-how to tap into new international markets for our products’ much faster.”
He added that Payback has one of the most efficient marketing platforms in Europe that enables companies to communicate directly and on a personalized basis with their customers and put forward their offerings.
“It has been proven that Payback customers are satisfied customers who buy more and more often,” said Rittweger.
Payback cards generate Eur14.5bn in sales annually. Each year in Germany the scheme distributes over 900 million coupons, 300 million e-mail newsletters, and 90 million direct mailings that are personally targeted to the customer’s needs.
Amex will also be getting access to Payback’s hundreds of retail partners in Germany, Poland and India.
Doug Buckminster – Amex president, international consumer and small business services – said the payment company would benefit from Loyalty Partner’s coalition model, which has proved to be successful in developed markets like continental Europe and developing markets such as India.
He added: “ It’s a very powerful market entry strategy for developing markets, where entry through payments-led products could prove more challenging as well as more capital intensive.
“In terms of the strategic fit, for me it comes down to a pretty simple thesis, which is the ability to add tens of millions of consumer customers to our franchise, with whom we have information-rich, multi-channel marketing relationships that we can leverage both in the sales and promotion of American Express-branded products, products of our global network services partners, as well as our merchant partners, a powerful information-driven marketing platform for our merchant partners, [which] I think is a very exciting opportunity.”
He added that bringing Loyalty Partner on board would help Amex with important missing pieces in its offering – particularly a coalition-ready loyalty platform: “Our Membership Rewards platform, you could argue, could be morphed into one, but not probably in the time frame that we needed it to be.”
There are four major streams in the Loyalty Partner business. The first, accounting for roughly 53% of its revenues, is the pure play coalition model. The second is performance marketing, where it sells personalized advertising to its online and off-line retail partners, an area that saw growth of around 20% in 2010, and accounts for 24% of LP’s revenues.
The third stream (around 8% of revenue) is the analytics business EMNOS, which works for customers such as Carrefour in France and, in Spain, for Waitrose/Morrison’s in the UK, for Ahold in the Netherlands and for Target in the US.
Finally there is the IT and outsourcing business (revenue share 22%), which serves Loyalty Partner, but also customers like Lufthansa German Airlines whose new mileage program will come from that business. German Railways’ mileage program is also produced by Loyalty Partner systems.
Reasons for sale
When asked why he had decided to sell the Loyalty Partner Business now, and why to Amex, Rittweger said: “For an entrepreneur, it’s always hard to sell the business, but as we were approached initially by American Express, we thought, oh, my God, big business and we are a small business and we are dynamic and independent and all of these things.
“But as we came closer in the discussions, we discovered what a massive opportunity to link up between American Express with its worldwide reach and our own capabilities would produce. And at the end of the day, the call was to say, okay, do we take a shot at becoming one of the world’s largest players, maybe even the largest; or, do we continue to develop marginally and maybe be a very, very good business but never really operating on a massive scale?”