AmEx to Issue Hilton Cards Alone -- WSJ

Company will become the single issuer for the hotelier, muscling out Citigroup

American Express Co. has won the rights to become the exclusive issuer of Hilton Worldwide Holdings Inc. credit cards, according to executives from both companies, a much-needed victory for the card issuer.

The deal ends a long-held arrangement in which AmEx and Citigroup Inc. had each issued the hotel's credit cards. Hilton more than a year ago had opened a bidding process for exclusive rights to its cards and decided to move to a single issuer.

AmEx will become sole issuer of the Hilton Honors cards in the U.S. beginning in January 2018, according to both companies. This is a boost for AmEx, which has lost several card partnerships since 2015, including Costco Wholesale Corp., JetBlue Airways Corp., and Fidelity Investments. Costco and JetBlue accounted for 23% of AmEx's U.S. balances at the end of 2015.

While Hilton is a loss for Citigroup, it was the issuer that wrested Costco away from AmEx, a far bigger arrangement.

The loss of partnerships like Costco dented investor confidence in AmEx's ability to grow and pushed the issuer to increase lending to help boost revenues. The setbacks also occurred as AmEx has come under increasing pressure in the high-end rewards card space, notably from J.P. Morgan Chase & Co. and its Sapphire Reserve rewards card.

The last time AmEx won a new credit-card partnership in the U.S. was in 2015, when it announced an exclusive agreement with Charles Schwab Corp. Yet co-branded cards remain important for AmEx.

Such cards accounted for 34% of the company's world-wide loan balances and 15% of its billings during the last half of last year. Its largest co-brand portfolios are with Delta, which accounts for 20% of world-wide loan balances, and Starwood Hotels & Resorts Worldwide Inc., which accounts for 5% of balances, according to AmEx data. All of its other co-brands comprise 9% of balances.

"Co-brands are very important for AmEx...and this particular arrangement is meaningful for us," said Denise Pickett, president of U.S. consumer services at AmEx.

Meanwhile, Jud Linville, chief executive at Citi Cards, played down the loss, saying in a statement that "during negotiations, it became clear that terms of exclusivity given the relatively small size of the portfolio were not economically viable."

While Hilton is now in AmEx's win column, investors are also awaiting news about the fate of its Starwood relationship. Marriott International Inc. completed its acquisition of Starwood last year and the hotel is reviewing several scenarios, including whether to merge the Marriott and Starwood credit-card programs, or to leave them separate.

Marriott's credit cards are issued by J.P. Morgan Chase. A decision will likely be made about the Marriott and Starwood cards by the end of the year, according to a person familiar with the matter.

In terms of the Hilton deal, it isn't immediately clear for AmEx investors how much of a financial boost the victory will bring. It wasn't known how much AmEx paid for the deal. Nor has the future of Citi's Hilton card balances been decided, said Mark Weinstein, global head of customer engagement, loyalty and partnerships at Hilton.

Also unknown is whether Citi Hilton card users will be able to continue using the cards after 2017. Those discussions are still under way, said Mr. Weinstein, adding that card users' relationship with Hilton Honors will continue. "This is a preview of what's coming in 2018," he said.

Competition for travel credit-card partnerships has intensified in recent years. Banks want airfare and hotel cards because most consumers who sign up for them have high credit scores and are high spenders. For some issuers, this is also an opportunity to sell other services to affluent consumers.

"The competition...is at the highest pitch I've ever seen it," said Michael Abbott, digital lead at Accenture Financial Services. "It's a war for distribution for the issuers."

And card issuers often have to give up a lot to get a deal. Hotels in recent years, for example, have been demanding that issuers pay them a higher amount for each point that consumers rack up on their cards. And the prices for these arrangements have been rising since the recession, Mr. Abbott said.

Another potential downside: Hotels typically want assurances from issuers that they will commit to getting more consumers to sign up for the cards and to use them a lot. That can lead to increased marketing spending at issuers, which has been an issue for AmEx in recent quarters.

Ms. Pickett of AmEx declined to talk about marketing expenses associated with this deal and said the company "already had a marketing partnership with Hilton and this is obviously continuing at a different level."

Such costs could become even more of an issue as banks and others have ramped up the rewards offerings on their high-end general purpose credit cards. That potentially diminished the allure of using, say, a hotel-specific card.

"Airline and hotel co-brands are a snoozefest...[they] are under pressure," said Brian Kelly, founder and chief executive of ThePointsGuy.com, which tracks rewards-card programs.

But there are pluses. Clinching a deal like this on an exclusive basis gives AmEx exposure to a large number of desirable consumers. Hilton's loyalty program has approximately 63 million members, according to the hotel. That includes a mix of consumers who have Hilton co-branded cards and those who earn hotel perks without the credit card.

"The deals are wins even if the positive impact isn't to the same degree it might have been about 10 years ago," said Craig Maurer, an analyst who covers AmEx at Autonomous Research

Corrections & Amplifications Hilton's full company name is Hilton Worldwide Holdings Inc. A previous version of this story referred to it as Hilton Inc. (June 1, 2017)

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

June 02, 2017 02:47 ET (06:47 GMT)