New Form Factors in Cobrand and Private-Label Credit Card Program Agreements

Most current cobrand and private-label agreements involve one or, more usually, two parties that are issuing, branding or developing non-traditional form factors alongside or in lieu of plastic cards.  Some of these form factors may be linked to intermediaries like mobile wallets (and in certain agreements form factors may be defined to include mobile wallets).

Unlike some other provisions of cobrand and private-label agreements, the provisions regarding new form factors have not yet become largely standardized.  Accordingly, they can pose special challenges for the parties to such agreements – and for their counsel.

Summarized below are some key considerations in the drafting and negotiation of these provisions.

• Process Provisions:  Parties participating in or developing particular solutions should provide for these solutions specifically.  But these and other parties will also typically be uncertain which other form factors they may become involved with going forward.  Accordingly, most form factor provisions will tend to focus on process – rights of first refusal, rights to match, rights to participate in RFPs, MFNs, allocation of development and conversion costs, timing requirements, and similar provisions.  Typically, different fact patterns – for example, scenarios involving new form factors that are proprietary versus those that are freely available in the market – will call for different process provisions.  Counsel can add value by being creative about these different fact patterns, and about potential process matches for each one.

• Third Parties:  Form factor provisions present special complexity in part because of the number of third parties and quasi-third parties whose involvement must be taken into account.  Examples can include solution providers, existing or nascent payment networks, and parties’ IT development units (and their release cycles and prioritization rules).

• Exclusivity:  The exclusivity provisions (generally limiting a party’s rights to issue, market, brand or accept competing payment instruments) may apply only to plastic cards; to all means of accessing an account, regardless of form factor; or to a specified set of form factors.  A strong exclusivity provision may not allow the parties to enter into arrangements for a new form factor with a third party or otherwise subject such arrangements to the process provisions described above.   Key battlegrounds may include the definitions of “card” and “form factor.”  In the event of a stalemate, there may be room for compromise by adjusting the economics of the program to account for the possible cannibalization of the portfolio by instruments left outside the scope of the exclusivity provisions.

• Intermediation:  To the extent use of a form factor is linked to the introduction of an intermediary between the parties, many provisions of the agreement – seemingly unrelated to the issuance of new form factors – may have to be revised.  For example, in a private-label agreement, provisions that limit the use of the card to the purchase of the retailer’s goods and services may have to be revised to take account of purchases of value on a mobile wallet for use at the retailer.  The presence of an intermediary can also complicate sales-tax recovery provisions.