TORONTO — CIBC has signed a deal to acquire the Canadian Costco credit card portfolio and become the exclusive issuer of Costco Mastercards in Canada as part of a push to diversify its card portfolio.
The bank did not disclose financial terms, but said that the portfolio includes millions of credit cards with more than $3 billion in outstanding balances.
The deal will help CIBC expand its non-travel focused cards and opens the potential to draw Costco card holders to other CIBC products, said Laura Dottori-Attanasio, the bank’s head of personal and business banking, in a statement Thursday.
“This relationship enables us to diversify our credit card portfolio in everyday rewards, grow our market share in payments, and provides a meaningful opportunity to deepen relationships,” she said.
“We’re committed to providing a great client experience and earning more of their business through our expert advice and industry-leading solutions as we help make their ambitions a reality.”
The bank says existing Capital One Costco Mastercard cardholders can continue to use their current card until they receive their new CIBC Costco Mastercard, expected early next year. The bank said it will announce details on card rewards in the coming months.
The new CIBC Costco Mastercard will offer rewards for shopping at the more than 100 Canadian Costco warehouses and Costco.ca as well as serve as a Costco membership card.
The deal adds a Mastercard offering to CIBC’s portfolio of Visa cards, including its Aventura and Aeroplan travel rewards card and its Dividend cash back cards.
Speaking on an investor call last week, company chief executive Victor Dodig said it was important that the bank have a balanced card portfolio.
“As the economy continues to normalize, our goal is to ensure we have both a strong travel and nontravel card presence to capture market share as consumer spending increases.”
Scotiabank analyst Meny Grauman said in a note that adding a portfolio of this size in a mature market is certainly positive for CIBC, though questions remain about the profitability of the business given Costco’s reputation for driving a hard bargain.
“The real prize here for CIBC will be the cross-selling opportunities to millions of affluent card holders, only a small portion of which are current CIBC customers.”
The deal will increase CIBC’s total card balances by about 30 per cent to more than $13 billion to solidify its third place position in Canada for both outstanding balances and purchase volumes, said Grauman.
Banks have seen credit card transactions rise as spending increases, but balances on cards have remained lower as more consumers have been paying of their balances.
Statistics Canada said last week that Canadians had paid down $16.6 billion in credit card debt in the first year of the pandemic, leaving the outstanding balance at $74 billion in January 2021.
The 18.3 per cent balance decline was a sharp reversal of the trend over the past 20 years, which saw credit card balances rise on average by 20.7 per cent a year to reach a peak of $90.6 billion in February 2020.
This report by The Canadian Press was first published Sept. 2, 2021.
Companies in this story: (TSX:CM)
Ian Bickis, The Canadian Press