Neo Financial: Loyalty Takes Flight
By: Lena Tang Qiu & Aalyan Bhanji
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
A Neo Dawn in Canadian Fintech
Neo Financial (Neo) is a Canadian fintech company headquartered in Calgary and Winnipeg, specializing in digital-first financial products. Founded in 2019, Neo offers options for spending, saving, investing, and mortgages, secured through the Peoples Bank of Canada, a CDIC member institution. Neo’s flagship products are its credit card offerings, which are segmented into two products: Neo’s in-house Mastercards, which offer targeted rewards for partnered businesses, and co-branded credit cards with Tim Horton’s, Hudson’s Bay, and Cathay Pacific.
The Canadian fintech space has grown significantly in the last decade. Key players like Wealthsimple now manage over $50 billion in assets, and recently, in October 2024, KOHO secured $190 million to fund their growth. Similarly, Neo has established itself as a significant player in the Canadian market, boasting over 1 million customers and reaching a $1 billion valuation in May 2022. However, an issue with active user loyalty in 2022 raised concerns about the company's ability to sustain long-term growth.
Big Bets, Small Payoffs
In today’s financial services landscape, online banking has become the norm for most Canadians, with over 87 percent using online banking and 70 percent relying on app-based banking. Gen Z and millennials primarily drive this growth. Neo has positioned itself to cater to this demographic by offering fully digital banking services and credit cards natively designed to integrate with digital wallets. Consequently, Neo’s customer base now comprises underserved communities who are less willing to make significant purchases.
In 2022, 96 percent of Neo’s active cardholders were co-branded credit card users. However, Neo’s reliance on these cards faces systemic and design-driven challenges. One major struggle has included low user engagement, with only 40 percent of cardholders executing one or more transactions on their Neo account within a given rolling 30-day period. In addition, Neo has seen low credit card retention rates and decreasing monthly active users on its co-branded Mastercard. One such example of a failing partnership is Neo’s Hudson’s Bay Mastercard, which employs a rewards program that averages just a 1 percent return on each dollar spent and can only be redeemed at Hudson’s Bay and thus fails to provide competitive value in an already over-saturated credit card market. This disconnect between the rewards offered by Neo’s co-branded cards and the preferences of its younger target demographic has been a limiting factor in the success of these initiatives. As such, Neo faces pressure to secure partnerships that provide value to consumers and drive user engagement.
In 2023, Neo attempted to expand its co-branded cards through its Cathay Pacific travel card. However, this partnership was inherently misaligned with Neo’s price-sensitive customer base. Cathay Pacific’s services primarily catered to premium business travellers in Southeast Asia by offering direct flights to Hong Kong from Canada, often costing 80 percent more than flights requiring a single layover. Thus, this partnership had limited appeal to Neo’s younger and price-sensitive customer base and was unsuccessful.
Looking ahead, Neo must prioritize partnerships that align more closely with its existing customer base while minimizing self-cannibalization.
Finding Neo’s Edge
The highly concentrated Canadian financial services industry constrains Neo’s potential to grow its customer base. In 2022, the top five banks controlled over 75 percent of banking revenue and most credit card users. These dominant players have established themselves as leaders in the credit card market, particularly in the travel rewards segment. Many offer programs that appeal to a wide range of consumers.
While Neo provides rewards through its co-branded partnerships, it lacks a competitive travel rewards card aligned with its user base. By entering this space with a value-based approach, Neo can differentiate itself and expand its market reach, aligning better with its core demographic’s preferences. This strategy would boost active card usage and increase customer acquisition rates.
The Money Mechanics Behind Airline Credit Cards
Airline credit cards generate revenue through several mechanisms, benefiting card issuers and airlines. For credit card companies, primary revenue sources include interest fees on unpaid balances, high annual fees associated with premium perks like lounge access and companion passes, and 1-3 percent interchange fees, which merchants pay on each transaction.
For airlines, these partnerships push customer loyalty and create additional revenue streams. Airlines sell rewards points or “miles” in bulk to credit card issuers, yielding high-margin income as the perceived value of miles often surpasses their issuance cost. For example, Delta’s SkyMiles program generated approximately $3 billion from the sale of miles to card issuers, like American Express, in 2019. Cardholders value collecting miles, often choosing to book more flights with their partner airline. Research shows that frequent flyer program members are willing to pay a price premium of up to 6 percent to maximize their point redemption opportunities, demonstrating the strong influence of loyalty programs on purchasing behaviour. This behaviour boosts ticket sales and keeps the airline co-branded card “top of wallet,” driving sustained loyalty and revenue growth for both airlines and credit card issuers.
Why Airline Credit Cards Are Popular
In recent years, consumers have increasingly gravitated towards airline credit cards, with nearly 25 percent of US households holding an airline card. Many travellers prefer to accumulate miles for perks like free flights, upgrades, or vacation packages, reflecting a broader shift toward prioritizing travel-related benefits over everyday purchases. Airline credit cards typically provide advantages like free checked bags and airport lounge access, which help offset travel costs. For frequent flyers, savings from these perks—such as the $70 cost of a roundtrip checked bag—often offset the card’s annual fee. Furthermore, airline credit cards tend to offer a higher return on rewards at 2.8 percent, compared to standard cash-back cards at 1.7 percent.
Overall, Neo has a significant opportunity to pivot toward airline co-branded cards to meet the growing consumer demand for rewards beyond traditional cashback. By offering unique airline rewards, Neo can also strengthen its position against competing cash-back options in the market.
Case Study: JetBlue & Barclays Co-Branded Credit Card
The JetBlue Plus Card, co-branded with Barclays, is a prime example of the success that airlines and financial institutions have achieved through strategic partnerships.
Since its launch in 2015, the card has driven significant customer loyalty and contributed over $60 million annually to JetBlue’s bottom line. This success is attributed to its high-value rewards system, offering 6 points per dollar spent on JetBlue purchases, 2 points per dollar at restaurants and grocery stores, and 1 point on other purchases. Furthermore, perks such as free checked bags and the expedited earning of JetBlue’s “TrueBlue Mosaic” status have resulted in higher spending, further customer retention, and repeated consumer engagement with the airline.
Barclays also benefits from the high cardholder engagement and loyalty of the JetBlue Plus Card through the annual $99 fee in addition to revenues from frequent usage and interchange fees. In 2016, Barclays Consumer, Cards and Payments revenue increased £7.6 billion from £32.1 billion to £39.7 billion, driven in large part by the growth of Barclaycard US, which includes the acquisition of the JetBlue credit card portfolio.
This case underscores the importance of providing meaningful value to cardholders when releasing co-branded credit cards. Travel rewards cards generate loyalty and engagement, making them a compelling opportunity for Neo to explore. To enhance engagement and retention with its customer base, Neo must partner with a low-cost carrier and provide valuable rewards.
Porter Up For Success
A co-branding partnership between Neo Financial and Porter Airlines could effectively address Neo’s high attrition and low usage rates on their credit cards. This can be executed by launching a “Porter Rewards” Mastercard, offering rewards points on everyday spending.
The collaboration would create a mutually beneficial partnership for both brands. For Neo, partnering with Porter Airlines, a rapidly growing, low-cost Canadian carrier that aims to deliver a better experience at highly competitive prices, provides access to a broader customer base and positions Neo to use Porter’s growth. The “Porter Rewards” Mastercard would offer a higher return on spending at around 2.8 percent compared to Neo’s existing rewards cards, which makes it more attractive for consumers. Overall, the potential for consumers to earn points toward significant purchases like flights would further enhance the card’s appeal, driving increased usage, customer retention, and revenue growth for Neo.
For Porter, this partnership is equally strategic. As the airline expands, it aims to grow its loyalty program, VIPorter., Currently, passengers can only earn points by flying with Porter. Still, this credit card could allow consumers to accumulate points through routine expenses, such as grocery shopping. This would deepen customer loyalty and retention, as consumers are more willing to book flights with Porter to redeem their points.
Agility in Action
Two key factors stand out when evaluating Neo Financial against more established players in personal banking: innovation and differentiation through the app experience. As a fintech company, Neo must use its agility to develop unique, specialized products that align with Porter’s brand and values. This offers greater flexibility in product design compared to the more rigid, standardized offerings from traditional banks.32 This adaptability allows Porter to create a card that reflects its unique brand identity, enhancing customer engagement. Neo’s digital customization capabilities also allow Porter to create an integrated app experience for its loyalty program and co-branded credit card. This partnership would simplify the user experience, allowing customers to redeem points rather than working with complex airline websites quickly. Neo can adopt a similar approach to Barclays, which, in 2023, integrated a streamlined credit card application and redemption process into Frontier Airlines’ app. This enabled users to apply for the card and redeem points directly within the booking process. Neo can enhance this by allowing “Porter Rewards” redemptions directly through the Neo app, bypassing the cumbersome interfaces typically used by airlines. Since Neo’s app experience is already a major differentiator from traditional banks, adding app functionality makes it easier for customers to use their rewards, creating more substantial engagement with Neo and Porter.
Reaching New Heights
Neo Financial must prioritize smarter, strategically aligned partnerships to sustain growth and remain competitive in Canada’s fintech industry. Collaborating with Porter Airlines offers an immediate opportunity to address current challenges and expand its presence in the co-branded credit card space. By acting swiftly, Neo can use Porter’s growth to create a product that resonates with its core demographic, driving higher engagement and long-term success.
