Guide 64 · Partners
Selling points to partners and issuers
Sell points to a partner only at a price above what each point will cost you to honor, including servicing, and only when the partner brings members or spending you could not reach as cheaply yourself. Put the earn rate, price, settlement timing, volume and who keeps breakage in a written agreement before any points are issued. A sale below cost brings cash today and a larger bill later.
Many loyalty partnerships come down to one transaction: a partner buys your points and hands them to its own customers. Points are a currency, and partners will pay for the right to hand them out. A bank awards them on card spending, a car rental company offers them per rental, a retailer gives them as a sign-up bonus. Each sale brings cash today and a promise to honor the points later. Priced well, partner sales can fund a large part of a program. Priced badly, they pass your margin to the partner. This guide covers how to price a point sale, what the agreement must fix, and when to refuse.
What a sale is
What does selling points to a partner mean?
A partner pays your program for points, then awards them to its customers, who are or become your members. You receive the money when the partner buys or reports the points, and you take on the cost of honoring them when members redeem, which may be months or years later. In effect, it is a forward sale of your own currency.
Card issuers are often the largest buyers. According to the US Consumer Financial Protection Bureau, after a co-brand contract is awarded the issuer typically buys rewards from the brand in bulk, giving the brand a steady revenue stream, while the brand typically controls what points are worth at redemption. The CFPB reported that major banks paid more than $28 billion to merchant partners in their top co-brand partnerships in 2022, mostly for rewards. See points sale to partner for the term itself.
Types of partnership
Which loyalty partnerships involve selling points?
Not every partnership is a sale. The money flows in a different direction depending on the role the partner plays.
| Partnership | Who pays whom | What you are selling |
|---|---|---|
| Earn partner (car rental, retailer, utility) | Partner pays you per point awarded | Points, in small or medium volumes |
| Co-brand card issuer | Issuer pays you, often in bulk under a multi-year contract | Points, plus access to your members |
| Coalition sponsor | Each sponsor pays the coalition operator for points issued | A share of a shared currency |
| Burn partner (hotel nights, gift cards) | You pay the partner when members redeem | Nothing; you are buying |
| Cross-earn (reciprocal) | Each side pays for the other’s points it awards | Points, usually at a negotiated exchange rate |
According to the CFPB, an airline or hotel program may have many partners across industries but typically only one domestic credit card issuer, sometimes under an exclusive arrangement. That makes the issuer deal the one to price most carefully. The partner network entry covers how these roles fit together.
Set the floor price
How do you set the minimum price for a point?
Work out what a point will cost you, then price above it.
- Cost of a redemption per point. The average cost of the rewards members choose, divided by the points they spend.
- Expected redemption. The share of points you expect members to use. Start conservative.
- Servicing. Settlement, reconciliation, fraud checks and customer service for partner-issued points.
- Margin for error. A buffer for redemption running higher than forecast.
In a hypothetical program where a redemption costs one cent per point, a partner offering $8 per 1,000 points for 10 million points pays $80,000 for an obligation that could cost $100,000 if every point is redeemed. Even with some points never used, servicing costs can erase the difference. The floor should be set so the sale still pays at a high redemption rate. See wholesale point rate and retail point rate.
Account for breakage
How does breakage change the economics?
Breakage, the share of points never redeemed, lowers the expected cost of each point sold, so it is tempting to price it in and offer a lower rate. The risk is that breakage is an estimate. Points sold to a partner may be redeemed at a different rate from points members earn with you, and a change to your program, such as a cheaper reward, can lift redemption across everything already sold.
Test each deal at three redemption rates: your base case, a lower one and a higher one. If the deal only makes money at the low redemption rate, the price is too low.
Timing matters as well. The partner pays when points are issued, but your cost arrives when members redeem, which may be a year or more later. Many businesses defer part of that revenue until redemption, so the cash arrives before the profit is recognized. Agree with your finance team how partner sales will be booked before you sign, and do not spend the cash as if it were margin. Our guide to estimating breakage covers how to set the base case.
Write the agreement
What should a partner earn agreement contain?
Put these in writing before the first point is issued:
| Clause | What it fixes | Why it matters |
|---|---|---|
| Earn rate | Points per dollar or per transaction the partner may award | Prevents disputes over what members were promised |
| Price per point | What the partner pays, and how it changes over time | The core of the deal’s economics |
| Settlement | When and how the partner pays, and in what currency | Late payment leaves you funding the partner’s points |
| Volume | Caps or minimums on points sold | Unlimited volume at a fixed price is open-ended risk |
| Breakage and expiry | Who benefits from unredeemed points, and whether partner points follow your expiry rules | Determines the true cost |
| Data | What transaction and member data each side shares | Needed to forecast and to market |
| Suspension and exit | How quickly you can stop the partner’s earning, and what happens to points already issued | Limits damage if something goes wrong |
A small, capped campaign that the partner prepays and you can switch off within a day can run on a short written confirmation. Anything larger needs the full agreement; see earn partner.
Selling to an issuer
How do you sell points to a card issuer?
The same rules apply, with more at stake. An issuer may buy a large share of all the points you issue, under a multi-year contract. Compute your marginal cost of honoring a point, including the extra partners, staff or reward inventory you may need if volume grows, and set the floor price comfortably above it. Cap the volume sold at a fixed price, or tie price to volume, so a surge in card spending does not lock in a loss. Agree how the price changes if your redemption costs rise. And keep the right to set reward prices yourself, since the issuer will want stability while you need room to manage cost. The co-brand credit card guide covers the wider decision.
When to say no
When should you refuse a deal?
Say no when:
- The price is below your expected cost of honoring the points, including servicing.
- Your systems cannot keep partner-issued points separate from points members earned with you, so you cannot track what each deal costs.
- The partner wants unlimited volume at a fixed price.
- The partner would hand your points out so freely, for example as large sign-up bonuses, that members who earned theirs slowly see their balance as worth less.
- The partner brings no customers you could not reach more cheaply yourself.
A partner who cannot pay the floor price is asking your program to fund its marketing. Refusing protects the value of the currency for every member who already holds it.
More answers
Frequently asked questions
Why do loyalty programs sell points to partners?
Because partners want to offer your currency to their customers, and they pay for it. The sale brings revenue now, extends where members can earn, and can bring new members to the program. For many programs, card issuers are the largest buyers.
How should you price points sold to a partner?
Start from the expected cost of honoring a point: the cost of the reward, multiplied by the share of points you expect to be redeemed, plus servicing, fraud and settlement costs. Set the floor above that, with a margin for error.
What is the difference between a wholesale and a retail point rate?
The wholesale rate is what a partner pays per point when it buys in bulk. The retail rate is what a member would pay to buy points directly, which is usually higher. Both should sit above the cost of honoring a point.
Should breakage be priced into a point sale?
Carefully. Assuming some points will never be redeemed lowers the expected cost and lets you offer a lower price, but if members redeem more than expected the cost returns. Price with a conservative breakage rate and test the deal at higher redemption.
Do small partner campaigns need a formal agreement?
A short written confirmation can be enough if the campaign is capped, prepaid and can be switched off quickly. Anything open-ended, or large enough to move your liability noticeably, needs a full agreement.
When should you refuse to sell points?
When the price is below your cost of honoring them, when you cannot track partner-issued points separately from points members earned with you, or when the partner wants unlimited volume at a fixed price.