American Express (NYSE:AXP) recently announced that the company, in conjunction with Charles Schwab (NYSE:SCHW), will create a pair of co-branded credit cards for the brokerage's clients. The only other detail provided about the deal was the (very approximate) launch date of early 2016. AmEx said more information about the two cards would be released closer to that time.
The announcement was made with little fanfare, and by AmEx alone. However, no matter what shape those products take, I believe the news is extremely positive for the card giant. Here's why.
AmEx really needs some victories these days.
Earlier this year its exclusive deal with Costco Worldwide (NASDAQ:COST) as the retailer's only accepted credit card and sole co-branding partner ended ignominiously. Although that was hardly a crippling blow for a company AmEx's size, it was painful: Costco accounted for roughly 20% of AmEx's worldwide loans and 10% of its cards in use. Ouch!
Around the same time, airline JetBlue similarly dropped AmEx as its co-branding partner (although the loss wasn't as acute; the airline's cardholder base is smaller, and AmEx didn't have exclusivity).
As a result, the card giant is in the investor doghouse. So far this year, its stock price is down by about 15%, whereas competitors Visa (NYSE:V) and MasterCard (NYSE:MA) have more or less broken even:
Brokering a win
No single deal will change that negative perception unless it's the size of the expiring Costco partnership (and also, ideally, exclusive in both card of choice and co-branding partner). The chances of such an arrangement are slim to none.
Schwab is far from Costco-sized; in 2014 it had 9.4 million active accounts, compared to the retailer's 42 million-plus members. Nevertheless, the brokerage is exactly the type of co-branding teammate AmEx needs: a company with a deep pool of relatively wealthy and solvent clients.
This is the card giant's sweet spot -- the customer base it's best at catering to. With its "members only" appeal and its sprawling, attractive Membership Rewards program, it has a nice shot at landing at least some of those millions of Schwab customers.
News of the deal came barely a month after the Costco breakup. This bodes well for the future, as AmEx has obviously come out swinging in the fight for new business. And it's already landing blows.
On the up
Of course, AmEx is still far from replacing the business that's vaporizing with the end of the Costco arrangement. But the Schwab partnership reveals that it's determined to notch more wins going forward and is capable of doing so. In short, AmEx is still a major credit card contender.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends American Express, Bank of America, Costco Wholesale, MasterCard, and Visa, and owns shares of Bank of America, Costco Wholesale, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Twitter Stock Upgraded: What You Need to Know
2018 could be the year Twitter turns profitable -- and Wall Street is getting excited.
Why RH Stock Rocketed 181% Higher Last Year
The upscale home furnishings retailer soared as management's strategy shift started to pay off.
This 11% Yielder Just Became a Bit Less Risky
Energy Transfer Partners LP is about to get a big cash windfall to pay down debt.