Consumers may be faced with reviewing their credit card and travel reward options in the wake of a deal announcement that sees Toronto-Dominion Bank taking over as Aeroplan's customer loyalty program partner.
Aimia, the Montreal-based company that runs Aeroplan, has pledged that no one will lose points under an arrangement that will see Aeroplan reward points switch from CIBC credit cards to TD credit cards.
CIBC had been purchasing Aeroplan miles from Aimia for 22 years, then awarding them to customers who use its Aerogold credit card. After CIBC and Aimia failed to agree to new terms on that agreement, TD stepped in with a bid of $100 million up front and a 15 per cent increase in the amount Aimia receives per air mile sold.
Under the terms of its current deal with Aimia, Canadian Imperial Bank of Commerce had the right to match any offer up until Aug. 9, 2013 — a deadline that passed without an offer or rejection from CIBC.
CIBC objects to deal
CIBC is not entirely happy with Aimia’s announcement of a deal with TD and has informed Aimia the TD deal is invalid because it fails to comply with terms of the existing credit card agreement, which expires on Dec. 31, 2013.
"The notice and proposed agreement was structured in a way that nullifies CIBC's right of first refusal and ability to match," CIBC spokesman Kevin Dove said in a statement Monday.
Dove said CIBC may opt to pursue legal action, but in the meantime, it is involved in talks with TD and CIBC over its CIBC Aerogold credit card portfolio.
The goal of the talks is for TD to take over half of the Aeroplan credit card portfolio. CIBC disclosed it is willing to divest itself of credit card only clients, but will try to retain Aerogold members who have a wider banking relationship with CIBC. That deal is expected to be finalized by Aug. 26, but there is no guarantee it will go ahead.
Aerogold owners' choice
Exactly how this will play out for owners of CIBC Aerogold cards remains to be seen. Aimia has guaranteed they will not lose points already accumulated on their cards in any case, but may have to move to a TD card to continue collecting points.
CIBC has the option of moving to an alternate rewards program to retain its customers.
But Barclays Capital analyst John Aiken says the potential sale of Aerogold cards to TD is "a common sense approach."
"We believe that this should defray some of the retention costs anticipated to be incurred by CIBC as it can focus on retaining the customers it has a more fulsome relationship with," he said.
"For TD, it alleviates some of the risk that current Aeroplan card holders will move to an alternative platform as it will likely make the transition much more seamless."
Beginning in January 2014, when the deal with Aimia takes effect, TD plans to offer a suite of Aeroplan Visa credit cards, with the potential to enhance its current travel rewards program.
TD to offer various cards
For TD customers and for any Aeroplan credit card users who make the switch to TD, that will mean choosing from a range of premium and mid-market Aeroplan cards, with a choice of benefits and rates. TD also says it plans a card for U.S. residents and Canadian small business owners.
Aimia also announced it's preparing to make changes to the Aeroplan program, starting in 2014, including the launch of new features with its co-branded credit cards.
"The enhancements we're announcing today are the most significant changes we've made in the Aeroplan program's history," Vince Timpano, Aimia's president and chief executive officer for Canada, announced on June 26.
Among other things, Aimia is launching Distinction — a new recognition program that rewards top-accumulating members with exclusive privileges and cancellation of a policy that sees Aeroplan miles expire after seven years.
Loyalty programs are big business for banks and credit card providers and there is constant jockeying for position in the sector.
Competitive sector of credit card market
David Barnes, vice-president of advertising and communications at Amex Canada, said cards with loyalty programs such as Aeroplan are a significant and active part of the credit card market.
"There is a lot of affinity to the rewards programs," he said. "There are loyalists with Aeroplan who are looking for every opportunity they can to collect points and get rewards, quite often travel rewards."
He expects an escalation in credit card marketing because of the change, which he calls the most significant in about 10 years. Amex Canada sees a "big opportunity" to nab new customers in the card market because of the coming changes, Barnes said.
"For a lot of people, particularly those who have an Aeroplan card with CIBC, it’s going to be a period in which they’re thinking about what action they’re going to take with their card and their rewards," he said.