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A shopper guides a cart past a line of gigantic boxes of breakfast cereals in a Costco warehouse on June 17, 2021, in Lone Tree, Colo. CIBC announced a deal to issue Costco Mastercards in Canada.

David Zalubowski/The Associated Press

Canadian Imperial Bank of Commerce and retail giant Costco have struck a multiyear deal that will make CIBC the sole issuer of Costco-branded Mastercards in Canada starting next year.

CIBC announced Thursday that it is acquiring Costco Wholesale Corp.’s existing credit card portfolio in Canada, as U.S.-based lender Capital One, which previously issued the cards, pulls out of its partnership with the retailer. CIBC said in a news release that Costco has millions of current card holders in Canada, but declined to provide an exact number. The portfolio has more than $3-billion in outstanding balances. Costco Canada said it has more than 10 million members who shop at its stores, and $25-billion in annual sales.

Financial terms of the deal were not disclosed.

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Cardholders are expected to be moved to the new card early in the new year, once the agreement closes. Until then, existing Costco credit cards will still work. After the change, the CIBC Costco Mastercard will offer rewards points for shopping at Costco stores and on the retailer’s website. Details of the loyalty program will be announced later.

The deal is CIBC’s latest move in a broader consumer banking strategy revamp that has become one of the bank’s top priorities. The institution has sought to reorient itself at a time when credit card lenders are jockeying for position, and when the dynamics of the credit card business in Canada are shifting rapidly, because of both changes in customer preferences and new regulatory scrutiny.

Though investors have focused on the bank’s efforts to improve the rate of growth in its mortgage business, which lagged peers for two years but has since caught up, CIBC has also made key changes to its suite of credit cards.

In addition to promoting its proprietary Aventura Visa cards, the bank paid $292-million to be a partner in Air Canada’s takeover of the Aeroplan loyalty program. It now has a role secondary to lead partner Toronto-Dominion Bank. And early this year, CIBC made cash-back rewards offered on its Dividend Visa cards more generous, in a bid to balance a card portfolio that had been more heavily focused on travel rewards.

CIBC’s personal and business banking head, Laura Dottori-Attanasio, told analysts on a conference call last week that the bank’s credit card applications have recently risen sharply. Winning a larger share of the credit card market is increasingly important, she acknowledged, because the credit card industry faces a number of challenges.

Since the start of the COVID-19 pandemic, customers stuck at home have spent less money than they previously did, and concentrated their purchases on everyday essentials. Those spending levels are rebounding now that there are more options for travel and entertainment, but many customers have paid off their cards with extra cash saved during the pandemic. Card balances are still at unusually low levels over all, and Ms. Dottori-Attanasio said there will be a slow build in outstanding balances and the interest income they produce.

Card issuers are also being challenged by shrinking fees. Prior to the federal election campaign, Ottawa had announced plans to drive down credit-card transaction charges paid by merchants, the volume of which has risen as shoppers use cards more often to make purchases. It was the third time in less than seven years that the federal government has pressured credit card companies to lower the charges, known as interchange fees. The announcement came after a previous agreement that only took effect last year.

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And there are new, digitally savvy challengers in the cards business. After Capital One withdrew from its partnership with the Hudson’s Bay Co. early this year, the retailer struck a new pact with Neo Financial, a Calgary-based digital banking startup, to offer its popular Hudson’s Bay credit card.

Financial technology companies have driven a flurry of activity in buy-now-pay-later lending, which allows customers to break payments made on cards into instalments. CIBC launched its own instalment service last year, called CIBC Pace It. The interest on instalment payments has narrower margins than traditional credit card balances.

For CIBC, the Costco agreement is ultimately about more than credit cards. Once a CIBC-issued Costco card is in a customer’s wallet, the bank sees an opportunity to sell them other products and increase their loyalty.

“This relationship enables us to diversify our credit card portfolio in everyday rewards, grow our market share in payments, and provides a meaningful opportunity to deepen relationships by meeting the financial needs of Costco members,” Ms. Dottori-Attanasio said in a statement.

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