JPMorgan just announced a deal with Affinity Capital Exchange (ACE), a venue for companies looking to secure debt financing via points programs like frequent-flyer miles.
Loyalty programs can be extremely valuable, but leveraging them to acquire capital has traditionally been a complex process only handled by banks and high-yield creditors.
Executives from JPMorgan and ACE said the venue streamlines loyalty financing.
"When you think about this industry, it has been one that has been starving for innovation for a long time," Andreas Pierroutsakos, a managing director at JPMorgan, told Business Insider.
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One of the top investment banks in the world is partnering with a startup that helps companies use their loyalty programs to raise capital from institutional lenders.
JPMorgan announced on Thursday it had entered into an agreement with New York-based Affinity Capital Exchange (ACE), a venue for companies looking to secure debt financing via points programs like frequent-flyer miles.
As a result of the deal, JPMorgan's clients will have access to a standardized way to turn their loyalty programs into capital. While companies have been able to leverage these programs for cash in the past, the process is far from streamlined, Andreas Pierroutsakos, a managing director at JPMorgan, told Business Insider.
"We are creating liquidity in an asset class that has been viewed as the opposite of that … You have this amorphous asset class, and now we're creating bite-sized pieces," he said.
"When you think about [loyalty financing], it has been one that has been starving for innovation for a long time," Pierroutsakos added.
Loyalty programs are valuable, but illiquid
Loyalty programs represent big money for companies.
The combined value of the 10 largest airline loyalty programs is more than $112 billion, according to a January report from On Point Loyalty, a consulting and investment firm that focuses on airline loyalty programs. The loyalty programs at Delta Air Lines, American Airlines, and United Airlines were all valued at above $20 billion, at the time.
However, valuation on paper is one thing; converting those assets into actual cash is another.
In order to secure financing via the programs, companies typically turn to either the card issuer tied to the program or spin off the loyalty program entirely, Pierroutsakos said. The ecosystem is full of one-off deals dominated by banks and high-yield creditors, he added.