The Future of Retail Cobrand Programs - Questioning the Answer Engine

A skeptical and independent analysis of AI-generated predictions for the future of cobrand programs.

Artificial Intelligence – will it have a net positive or negative impact on the human experience? I think we’ve all experienced a tinge of fear when that question is asked. Given the deluge of commentary and headlines reinforcing both sides of the question, it’s impossible to avoid. One day an IT company fires half its staff, the next we’ve cured an intractable disease. I won’t wager a guess on the ultimate end-state between AI and humanity – symbiotic or parasitic – but I do enjoy testing the accuracy of answer engines when it comes to topics about which I have legitimate interests.

While most answer engines are amazingly accurate and far more right than wrong, I’m still not sure they can predict the future. I recently asked Copilot about the future of retail cobrand programs. As expected, the answer was exceedingly detailed and replete with the most up-to-date industry talking points – no doubt compiled using white papers and commentary from the most prominent insiders in the business. That point notwithstanding, I thought it’d be interesting to take a deeper look at the response Copilot provided and apply a dose of skepticism. What if the perspective of industry thought-leaders, especially when aggregated and sterilized of nuance, is more a reflection of conventional wisdom and inertia than true market demand? Do most customers want more personalized rewards, or is this the result of loyalty program providers and data aggregators trying to sell more capabilities? Will BNPL continue to be a preferred credit option among young people or will they “graduate” to more traditional credit cards as their finances mature?

Below is a brief analysis, and one-person’s perspective, on the answer I recently received to the question, “what is the future of cobrand retail credit card programs”. To be clear – I fully recognize the complete an utter knowledge inferiority of my perspective versus that of a LLM, but in any case, it’s never a bad idea to embrace credible challenge and apply a layer of independent questioning. AI may be the greatest technological innovation in human history, but it still might fall short of a crystal ball.

Copilot identified five key attributes which will define retail cobrand programs in the future (written in bold). My rebuttal to each is provided in plain text.

• Hyper‑personalized rewards driven by AI and real‑time data. ACC Analysis: Partially True. There is no doubt loyalty providers and issuers alike will continue to ingest more data and use that data to create more-and-more personalized offers. This trend has been evolving for years and will certainly continue as data gathering accelerates, as compute grows exponentially, and as privacy laws solidify and enable data mobility. The “partially correct” aspect comes from whether or not consumers will respond to this hyper-personalization in mass. Paradox of choice is a real and firmly established human response mechanism. As optionality become ubiquitous, it’s very possible consumers will default to easier-to-manage behaviors. They may simply choose to use coffee loyalty for free coffee, gas cards for cents-off at the pump, and travel cards for free bags. Whether or not personalization becomes the driving factor in card program rewards management remains very much an unknown.
• Flexible tender models that integrate credit, debit, BNPL, and stored value. ACC Analysis: Mostly False. Technology will enable flexible tender models and some consumers will embrace the integrated payment methods offering real-time, POS choice between the various tenders. However, when it comes to choosing a payment option, consumers are notoriously singular in their behaviors. Moreover, as hyper-personalization within rewards becomes more prevalent, layering in tender optionality will only exasperate the challenge of complexity. When customers are faced with navigating a complex matrix of options to choose how to pay, most will revert to established behavior rather than lean-in to more intricacy. To the extent customers accept more options, I predict it will be in rewards rather than tender.
• Closed‑loop ecosystems that deepen customer lifetime value. ACC Analysis: True. In the not-so-distant past, it seemed as though the push toward open-loop ecosystems was the way of the future. Point swapping partnerships and off-partner burn options were expanding rapidly and loyalty program managers were promoting open-loop as the cutting-edge solution. This trend appears to be waning as brands realized it was difficult to manage the loyalty and economics of customers with off-brand burn and 1:1 point swaps. Copilot’s prediction that closed-loop ecosystems will be the primary focus going forward is correct.
• New economic models as interchange, credit risk, and regulatory pressures evolve. ACC Analysis: True. The credit card industry has been in a near constant state of change since it’s beginning in the 1950s – this will continue. Interchange income received by banks will trend lower over time. Credit risk will ebb and flow through economic cycles. Politicians on both sides of the aisle will continue to scrutinize nearly every action taken by banks in the credit card space. It’s impossible to predict exactly which of these factors will change or how, but it is a certainty that the economic model will look different in five years.
• Partnership structures that look more like joint ventures than vendor contracts. ACC Analysis: Partially True. Innovation within deal structures will occur, in particular at the large and mega-sized program level. Behemoth corporations like Walmart and Amazon will push for more ownership of program economics, marketing, data, etc, and aspects of these creative arrangements will certainly trickle down to smaller programs. However, for the vast majority of card programs in the market, brand partners will continue to focus on their core business. When times are good and losses are low, it’s always tempting to consider more equally sharing in program economics. This quickly fades as economic and regulatory winds change. Joint-venture-like contracts will emerge, but the phenomenon will be the exception, not the rule.