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The credit card landscape in Australia has turned into a three-horse race in recent years in part due to the issuance within the premium end of the spectrum of companion cards, in which each account holder receives an American Express card as well as either a Visa or MasterCard.
A companion card is a credit card account that is linked to two different credit card networks, thus allowing the customer to earn the benefits of whichever one they choose to use at the purchase point. Traditionally, the core component of the American Express value proposition has been its membership rewards program, but merchant acceptance is relatively limited, especially compared with Visa and MasterCard. Using an American Express card also may carry a surcharge at certain merchants in Australia that are trying to make up for the higher interchange fee associated with processing Amex cards.
Companion cards give customers the ability to make the most of the attached rewards program but with only the hassle of maintaining one account and one annual fee. Over the last few years, more and more banks in Australia have started to embrace the companion-card concept as its sole premium rewards card offerings. In fact, all four of Australia’s big banks, including Commonwealth Bank, ANZ, Westpac Bank and National Australia Bank, offer at least two different companion card accounts as part of its premium card accounts.
At one time Visa was the clear leader with as much as 60% of the value share of the credit card market in Australia as recently as 2001. The popularity of companion cards has built up the market share of American Express, as well as contributing to gains made by MasterCard, which has achieved three-consecutive years of market share growth. Though Visa remains by far the largest player in credit cards in Australia, its share of the market has steadily declined over the past decade to 54% in 2010. It has come under pressure from its global rival, MasterCard, which has grown its share of the credit card market from 28% in 2001 to 34% in 2010. MasterCard has driven much of the innovation in the market with big wins of popular credit cards, such as Go MasterCard, as well as benefiting from the decision by the Commonwealth Bank, one of Australia’s Big Four Banks, to select MasterCard over Visa as its primary payment card operator.
American Express is a relatively new entrant into the Australian credit card market. With its traditional stronghold of charge cards no longer providing attractive growth opportunities, American Express decided to trade on the strength and prestige of its brand to become a more serious competitor in credit cards, particularly personal credit cards. It benefited by being able to forge alliances with many of the major Australian banks in 2009 to offer companion cards linked to credit cards in the market like Visa and MasterCard. The companion card arrangement made it easier to get an American Express card into the hands of consumers either not already familiar with the product or weary to use the card due to belt tightening by consumers in light of the economic downturn.
Companion credit cards allow customers to build reward points faster. American Express can offer more points and benefits among the companion card offers, with the rate of accumulation as much as three times greater than those issued with Visa and MasterCard logo. American Express can give its consumer base more because it is able to pass on its cost through higher merchant service fees. In 2002, the Reserve Bank of Australia said banks issuing Visa and MasterCard were charging too much for card services and were not subject to competition. The government stepped in to regulate this fee and cut Visa and MasterCard merchant service fees in half. American Express and Diners Club were not covered by the new rules because banks are not the sole issuer of these cards. American Express and Diners Club have since lowered some of these fees in order to avoid losing customers to Visa and MasterCard.
Of the big four banks in Australia, Westpac Bank offers the most companion card options with eight cards featuring American Express with either a companion card from Visa or MasterCard, including two that include a partnership with Singapore Airlines. One of ANZ’s companion cards also features an airline partnership. The Qantas frequent-flier card gives customers 1 Qantas frequent flier point per A$1 ANZ spent on the American Express card versus the half point they would earn when using the Visa card. With its dual cards, Commonwealth Bank offers one reward point for every dollar spent on MasterCard versus 1.5 points a dollar on standard Amex, two points a dollar on gold Amex and three points a dollar on platinum Amex. Of course, more points equates with a higher annual fee which ranges from A$59 for the standard Amex rewards card to A$395 for the gold card, if the consumer has an existing relationship with the bank. It’s A$30 higher for customers who don’t.
In reality, the companion card may not be for everyone. If a customer’s shopping habits allow them to spend on Amex consistently without the surcharges at merchants than it is a viable option. If not, than a dedicated Visa or MasterCard reward program would be a better fit, although those are more limited than the companion cards nowadays. Two credit cards with two different offerings attached to the same account also can be confusing for consumers to determine the best product for their lifestyle. Nevertheless, companion cards have proven to be an interesting approach to a reward program not yet common in many markets. For issuers, it has been a win-win as the programs have been successful in retaining customers’ interest in credit card rewards program and growing credit card volume, even as the migration to debit cards gained momentum during the recessionary downturn as consumers opted for a card type that appealed to their budgetary desires.