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The Rise of Co-branded Credit Cards

Prove
January 27, 2022

Take a close look at your wallet, and chances are that at least one of the credit cards you own features two brands. Partnerships between companies, usually a card issuer and a major retailer or service provider such as hotels and airlines, have led to the emergence of co-branded credit cards. These cards leverage the possibility of acquiring and retaining customers by offering rewards or cashback to loyal customers. Co-branded cards optimize visibility for partnering brands, provide greater value for money, and ensure that customers keep returning for freebies and rewards. 

Rising Popularity of Co-branded Cards

In the hybrid new world order, co-branded credit cards offer customers the dual advantage of a store card and a rewards card. These hybrid cards—backed by major networks and card issuers—work almost like credit cards and offer merchandise discounts, points, or other rewards. Historically, some of the first co-branded cards were issued by airlines to reward frequent travelers, and the concept then took root in the hotel sector. Nowadays, most major card providers issue co-branded cards in partnership with prominent retail chains. Some popular co-branded cards are Southwest Rapid Rewards Priority Credit Card, IndianOil Citi Credit Card, Hilton Honors American Express Aspire Card, HDFC Bank Diners ClubMiles Card, and Citi’s Costco Anywhere Visa Card.  

With younger adults and millennials gravitating toward digital payments, credit cards, especially co-branded cards, are seeing strong traction. A Packaged Facts report suggests that nearly 29% of US adults (73.7 million people) now own co-branded credit cards. 

Co-branded cards—with logos of both partnering companies—offer perks such as travel insurance and assistance during emergency trips. Banks and retailers are not the only ones to have jumped on the co-branded cards bandwagon. Some not-for-profit organizations have tied up with card issuers that share a percentage of their card fees charged on transactions. For example, Bank of America has tied up with charity Susan G. Komen charity for a co-branded credit card that donates a certain percentage of the purchases made on the card to the non-profit while offering customers value-added benefits such as cashback in the desired category (dining, travel, online shopping, and fuel stations, among others). 

Co-branded Cards across Segments

As per the previously quoted report on co-branded credit cards in the US, 17% of the users have department store co-branded cards, 5% own warehouse club co-branded cards, 5% use Amazon/Prime co-branded cards, and around 2% own airline/hotel-branded cards. As long as these cards are co-branded and offer all the services promised by the card issuer, they can be used anywhere. Co-branded cards are preferred to store cards, as they can be used to make payments at all outlets that accept the card issuer’s services unlike store cards that can only be used at physical and online store outlets. As co-branded cards often offer higher credit limits than store cards, consumers can make purchases without worrying about the transaction limit. 

Co-branded cards can be used to buy products at retail stores, sports stores, and pet stores and pay for ‘experiences’ at video game parlors and wine tasting sessions. For example, the American Kennel Club Visa card offers cardholders three points per dollar spent at pet stores, veterinary clinics, and the American Kennel Club. In addition, it offers benefits such as gaining two points per dollar spent on fuel and groceries.

Perks of Issuing Co-Branded Cards 

Why are card issuers and service providers so keen on partnering and offering co-branded credit cards? Firstly, these cards allow both parties to optimize the best of both worlds—an integrated customer base and a vibrant sales channel. Secondly, co-branded cards capitalize on the brand loyalty of customers who prefer to shop at a particular store or use a card from a specific card issuer for rewards and cashback. Moreover, retailers and other service companies can share revenue from the credit card fees charged by card issuers. By collaborating on co-branded credit cards, both parties can design monetization models to fairly distribute their individual revenue sources. These cards also offer companies more comprehensive customer data, helping them create better marketing strategies. Lastly, co-branded cards increase the brand visibility of both players. 

Co-branded credit cards are here to stay, thanks to the perks they offer to customers and issuing companies. Rise in digitization and online payments will only fuel this trend.

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