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Tim Horton's Timbits

Expect to see a slew of more partnerships between retailers and lenders as Canada's banks dive deeper into credit cards.

As the banks chase interchange fees – offering them a small cut of the purchases made using their credit cards – and as retailers expand loyalty programs, the two groups are bound to keep getting together to launch co-branded pieces of plastic.

The latest deal, announced Thursday, is between Canadian Imperial Bank of Commerce and Tim Hortons, and it comes on the heels of relationships such as Royal Bank of Canada's partnership with Shoppers Drug Mart.

For CIBC, the deal has some obvious advantages. The two parties have agreed to launch a joint advertising campaign, and CIBC's name will now appear inside Tim Hortons' bricks-and-mortar stores. Talk about exposure. There are "a lot of eyeballs that are going to see this card," said David Williamson, head of retail banking at CIBC.

The new partnership will widen the range of customers likely to pick up a CIBC credit card. Currently the bank is best known for targeting high-end clients through its Aeroplan relationship and through its own Aventura travel reward cards. While Tim Hortons' customers often aren't as lucrative for card issuers, that's not a bad thing. Now CIBC can reach an entirely different segment of the population. (That said, there is certainly some overlap. I know many Bay Streeters who still love their Timmys.)

For Tim Hortons, the loyalty program is the big appeal. The coffee and doughnut shop – where I proudly worked for three years in high school – has long had things like gift cards, but the new deal offers something extra. Users can now accumulate "Tim Cash" rewards for all purchases made on their cards, which can be redeemed at the stores.

Interestingly, the loyalty program will be tied solely to the CIBC credit card. Whereas Shoppers still has a standalone optimum points program, "Tim Cash" will only be accumulated when using the CIBC credit card.

Already there are conversations being held between banks and retailers to launch more of these joint programs. In each case, the benefits to both parties will differ. Canadian Tire is one of the major candidates actively seeking a partner, but the retailer is looking for more than just a loyalty program – something it pioneered with its Canadian Tire money eons ago.

The chain is looking for a financial services partner to help expand its existing credit card arm. It's pretty easy to understand why. By partnering with a major financial institution, Canadian Tire should be able to obtain a lower cost of funding.

In order to lend money to its credit card users, Canadian Tire needs cash. Currently the retailer attracts it by offering investments such as Guaranteed Investment Certificates. But to attract clients to its own GICs, it needs to offer higher interest rates than the banks. Bring a bank into the fold, and those higher costs begin to dissipate.

There is no word yet as to whom Canadian Tire might team up with, but there is speculation that Bank of Nova Scotia is at least looking at the prospects. Recently Chief executive officer Brian Porter publicly acknowledged that the bank needs to do more to boost its credit card profile.

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