TD and CIBC agree to split Aeroplan card business

Money Reporter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

The agreement between Toronto-Dominion Bank (TSX:TD) and Canadian Imperial Bank of Commerce (TSX:CM) to split CIBC’s previously exclusive Aeroplan credit card business shows just how lucrative the credit card business has become.

And you know who pays, right? Not TD and CIBC. They do this to make money. No, the retailers pay for all the bonus rewards and travel through higher transaction fees that the Competition Tribunal just ruled they cannot avoid by refusing to accept certain high-fee cards, or charge the fees back to the customer.

Ultimately, that means that we pay as consumers, through higher purchase prices, jacked up by retailers seeking to recover their costs. Not to mention that the card holder pays $120 per year for the privilege of having an Aerogold card, plus high interest charges on cash advances or if the entire balance isn’t paid off by the due date every month.

And just how lucrative is the Aeroplan card business? Toronto-Dominion calculated that it made sense to pay Aimia, owner of Aeroplan, $100 million up front to part ways after 20 years wit h CIBC, plus 15% more for each Aeroplan mile accumulated, plus they agreed to jointly spend $140 million with Aimia on a stepped-up advertising campaign. That’s before having a single Aeroplan card holder under their belt. For that, they would have to negotiate with CIBC, or market heavily to get clients. Either way costs money.

CIBC, in turn, will receive about $3 billion from TD for half of its existing Aeroplan portfolio in January, plus $37.5 million a year for three years, plus $200 million up front from TD and Aimia. And CIBC will keep the other half of the portfolio, TD only gets CIBC’s Aeroplan card holders who don’t do any other business with CIBC. Become a share holder of either to cash in on this bonanza, and start net receiving instead of just paying all the time.

Money Reporter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

Comments are closed.