Photographer: Andrew Harrer/Bloomberg

Fidelity Said to Weigh Dropping AmEx, BofA as Card Partners

  • Visa and MasterCard are said to woo Fidelity to supplant AmEx
  • Fidelity AmEx card rates high in U.S. by offering 2% cash back

Fidelity Investments is considering dropping American Express Co. and Bank of America Corp. to find new partners and better terms for one of the top-rated cash-back credit cards in the U.S., according to people with knowledge of the matter.

Visa Inc. and MasterCard Inc. are in talks with Fidelity, vying to replace AmEx on a card that’s been amassing customers for more than six years, according to the people, who asked not to be identified because negotiations are private. AmEx is parting with Costco Wholesale Corp. and JetBlue Airways Corp., and losing the Fidelity deal would affect a key area of growth: facilitating transactions in which another bank is the lender.

Bank of America, which fills that role, also could be supplanted by another issuer, the people said. The discussions are fluid and may still fall apart, leaving Fidelity’s current partners in place, the people said.

“While clearly not nearly as significant an event as the loss of Costco, we see this news as further signs of competitive challenges faced by AmEx,” Jason Arnold, an analyst at RBC Capital Markets, said in a note to clients.

The card -- co-branded as the Fidelity Investment Rewards American Express-- offers a 2 percent refund on purchases, which can be paid into a variety of Fidelity brokerage, cash-management and savings accounts. The Fidelity-AmEx card is tied with Citigroup Inc.’s Double Cash card as the best card to earn rewards from everyday purchases, according to Bill Carcache, an analyst at Nomura Holdings Inc.

Spending Growth

The fastest-growing portion of spending on AmEx’s network comes from its Global Network Services business, where other banks issue AmEx-branded cards. Total GNS-billed business jumped 16 percent in the second quarter, adjusted for currency fluctuations, compared with a 4 percent increase on AmEx’s proprietary cards. Spending from GNS was $41.9 billion in the second quarter with 45.6 million cards circulating.

Spokesmen for Fidelity, AmEx, Bank of America, Visa and MasterCard declined to comment on negotiations.

The Fidelity talks are another front in the intense competition among banks and credit-card networks for partnerships. Earlier this year, Costco said it will replace AmEx with Visa and Citigroup, while JetBlue broke its relationship with AmEx and chose MasterCard and Barclays Plc. With co-brand cards accounting for about 30 percent of all transactions, banks and networks may see costs rise as they outbid each other, according to Goldman Sachs Group Inc. analyst Ryan Nash.

AmEx has renewed deals over the past 12 months with partners including Delta Air Lines Inc. and Starwood Hotels & Resorts Worldwide Inc. In March, it also announced a multi-year venture with Charles Schwab Corp. to create two co-brand credit cards.

Fidelity Investments, the world’s second-largest mutual-fund provider, doesn’t limit its current credit cards to AmEx’s network. It also offers one handled by Visa that pays cash back. Since Fidelity unveiled its first card in 2003, investors using the products have received a total of $975 million in cash rewards through the end of June, according to a company spokesman.

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