It looks like a tough time to be entering the credit card space. Default and delinquency rates are climbing from what had been historically low levels due to the housing slump and a rebound in bankruptcies.
But the deal illustrates how lucrative companies still regard the card business, particularly when it targets big spenders.
For Ameriprise, whose more than 2 million clients are mostly wealthy, underwriting looks fairly low-risk. Meanwhile, the benefits are luring and retaining customers through rewards programs, said Abu Arif, vice president and general manager of payments and deposits for Ameriprise Bank.
"The timing for us is actually pretty good," Arif said. He said Ameriprise considered many card processors but MasterCard's World Elite program — which offers perks such as airport club access and the luxury travel service Virtuoso — were particularly attractive selling points.
And for MasterCard, the advantage is gaining a bit more market share in the affluent segment. Card processors like MasterCard and Visa earn their profits from the fees they charge card issuers and merchants for using their network. The more cardholders spend, the more money they make.
"The affluent segment is one that MasterCard has been making investments in as a customer segment," said Bill Mathis, MasterCard's executive vice president of relationship management. "Ameriprise Financial is a natural in that regard — they do appeal to customers at the higher end of the income spectrum."
Financial terms of the deal were not disclosed.
Ameriprise will issue its clients both MasterCard credit cards and debit cards. The credit cards will have interest rates ranging from 7.5 percent to 11 percent. The credit lines will vary widely, depending on the client, and many will have no preset spending limits.
Ameriprise spun off from American Express Co. in August 2005. Ameriprise still has a marketing relationship with American Express and offers AmEx cards to its clients, but AmEx does the underwriting.
Barclaycard US will be the service provider for Ameriprise's account acquisition, marketing, and other services.
For the fourth quarter of 2007, Ameriprise posted a 49 percent jump in profit, thanks to its growing wealthy client business. MasterCard reported a sevenfold rise in fourth-quarter profit, due to a stake sale in a Brazilian company as well as a rise in cardholder spending both in the United States and abroad.
