Fidelity Investments, one of the nation’s largest mutual fund companies, is taking its $1.7 billion credit card business to a new bank.
On Monday, Fidelity’s customers can start applying for the new credit cards issued by US Bancorp and Visa Inc. Fidelity, based in Boston, expects to start sending all of its credit card customers the new cards by July 1.
Fidelity is ending its cobranding partnership with American Express and FIA Card Services, a subsidiary of Bank of America Corp., said Ram Subramaniam, president of Fidelity’s retail brokerage business. He would not comment on how much Minneapolis-based US Bancorp and Visa are paying Fidelity to get access to its credit card customers. Fidelity chose the new partners to improve technology options and customer service, he said.
Bank of America said the decision to part ways with Fidelity was mutual. The bank has been withdrawing from cobranding relationships with other financial institutions, since it offers limited opportunities for Bank of America to sell other products to those customers and expand its business, a spokeswoman for the Charlotte-based bank said.
Still, cobranding, in which banks and payment-processing companies work with merchants to issue cards to customers loyal to a store, hotel chain, or airline, is an increasingly competitive market. The merchants usually negotiate lower fees and a share of the revenue with banks. For banks, it is a way to quickly acquire a large group of new customers.
Fidelity probably had several banks competing for its business, since its customers are loyal and well-off. They have investment accounts and good credit and are likely to spend on big-ticket items, said John Grund, a partner at First Annapolis Consulting, a credit card consulting company in Maryland. “You’re getting access to above average income customers,” Grund said.
The US credit card business is well established, with customers sticking with their cards for long periods. So cobranding deals are another way to lure large groups of consumers to switch banks and card companies, just like offering cash back or airline miles, Grund said.
The new cards, available to Fidelity’s 24 million customers, will retain many of the same elements that made the old ones popular. Customers will be able to earn 2 percent cash back, which they can deposit into college savings and retirement accounts. The card has no annual fee. Fidelity customers will also be able to purchase select merchandise with the card, an option that they did not have before.
The new cards will be chip-enabled and customers will have access to digital wallets, such as Apple Pay, Samsung Pay, and Android Pay. As part of increased security on the new cards, customers can get text messages on their mobile phones if they are traveling abroad to verify that they, and not some fraudster, have made certain purchases.
“We feel this [card] can have a tremendous adoption rate,” Subramaniam said.Deirdre Fernandes can be reached at email@example.com. Follow her on Twitter @fernandesglobe.
A clarification was made to this story to reflect that customers can apply for the new cards Monday.