What are Co- branded cards? : All You Need To Know

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In the last two-three years, India’s co-branded credit card market has increased. Co-branded cards have been one of the most popular products to increase customer gratification.

While customers like rewards, discounts, and cash back, co-branding partners and issuers can scale their businesses. So, how do co-branded cards work?

So, what are co-branded cards and how do they work? In this blog, we will uncover that and more!

What are Co-branded Cards?

Co-branded cards are debit or credit cards provided by the issuers (banks, financial institutes, or fintech companies) by partnering with a merchant/corporate entity to provide tangible benefits like cashback, lounge access, rewards, etc.

Thus, co-branded debit cards, co-branded prepaid cards, co-branded gift cards, and co-branded fuel cards are all examples of co-branded cards offering different benefits from different segments (lifestyle, travel, fuel, etc.).

What are Co-branded Credit Cards?

A co-branded credit card is issued jointly by the credit card issuing company (bank or financial institution) and a co-branding partner bearing both parties’ names or brand logos that offers merchant-specific benefits.

Thus, co-branded cards give more benefits and rewards to the customers, whereas the banks get more customers, and the co-branding partner gets the brand visibility.

Remember: The co-branding partner will not have access to the customer transactions done through the co-branded cards as per the latest co-branded credit card guidelines released by the RBI.

Let’s understand some co-branded card examples to dig deeper.

Co-branded Credit Card Examples

Out of many types of co-branding card opportunities, some co-branding strategies worked well. Travel cards are one of the most accessible co-branded credit cards to get. Let’s look at the strategy of some of the popular co-branding cards.

Southwest Airlines

Southwest is an airline company quite popular in the USA for offering flight-friendly services to customers. They partnered with Capital One to issue co-brand travel cards to optimise revenue. Below are the key highlights of their co-branding credit card strategy.

The co-branding credit cards by Southwest Airlines offered flexibility, transparency and simplicity to use as their travel cards across countries.
They captured a large segment of the customer base by promoting rewards transparency and a rich set of offers and benefits (e.g., no restriction on the expiry of the miles earned).
They focus on a niche customer base with a limited presence; hence, they have been one of the strongest players in the travel card industry.
They also launched the Rapid Rewards frequent flyer program to promote own-branded travel cards.
They ensured to make the card rewards the most transparent feature by offering points for every amount spent on the card.

Target’s Co-branded Cards

As one of the largest retailers in the USA, Target decided to offer co-branded credit cards to its customers who are buying items from them regularly.

They offered co-branded credit cards and co-branded debit cards, which turned out quite well as both had considerable customer spending.
Their cards provide different reward programs to suit the different needs of the customers.
Instead of collecting points and redeeming them later for future purchases, these cards offered discounts for the amount spent through the cards.
They allowed their customers to use their cards at other stores but made significant revenue by charging high fees on such transactions.

Mercedes Benz

Benz issued co-branded credit cards to its customers by partnering with American Express (AE) and Morgan Stanley. While AE has many co-branding partners in different industries (airlines, retailers, hotels), this partnership made significant revenue for all.

They targeted affluent class customers to increase their spending by offering customised reward programs.
This partnership provided a successful co-branding example to the world in the retail industry since most partnerships did well in the airline industry.
By adding Morgan Stanley as a co-branding partner, Benz widened its scope to add financial services.
It allowed them to create new distribution channels to add customers from different segments.

Let’s see the list of some of the popular co-branded cards in India:

Indian Oil Citi Credit Card
HDFC Bank Diners ClubMiles Card
IRCTC SBI Platinum Card
Axis Bank Vistara Signature Credit Card
HDFC Bank Regalia First Card
JetPrivilege HDFC Bank Diners Club
Citi Premier Miles Card
Axis Bank Miles & More World Credit Card

Now that we have understood the co-branded cards with examples, let’s know how they offer customised rewards and discounts.

Does Co-branded Cards = Rewards?

Rewards and benefits are the real heroes of co-branded credit cards. There is no co-branded card that doesn’t have a reward program, and through attractive rewards, only companies can catch more customers.

So, how do co-branded credit cards work?

Instead of offering rewards at one store or a retailer, co-branded credit cards offer rewards, miles, and benefits for every amount you spend. So, whenever a credit card issuer offers any reward to you, they pay a premium to the co-branding partner (airline, hotel, retailer).

Let’s understand the benefits of co-branded cards for different parties involved.

Co-branded Credit Cards Pros and Cons

While co-branded credit cards offer multiple benefits to customers, they are beneficial to issuers and co-branding partners in many ways. Let’s see what those are.

Co-branded Card Benefits for the Cardholders

Exciting rewards: Unlike the other traditional cards, these cards come with great rewards, offers and discounts so, the customers get rewarded for every amount they spend.
Milestone benefits: They also provide milestone-based benefits such as movies, travel, or stay to encourage the customers to gather more points.
Additional benefits: Some co-branded prepaid card programs, including credit card programs, provide other benefits such as free insurance, and access to premium places like airport lounges, golf courses, etc.

Benefits for the Co-branded Card Issuers

Increased customer base: The issuers gain more customers from the partnership with the co-branding partners.
More customer trust: The issuers gain more trust with greater engagement and have fewer chances for customers to move to any other competitor.
Better customer experience: The co-branded business cards provide a superior experience to their business customers; hence, the customer experience improves.
Increased regular transactions: Some co-branded credit card programs, like milestone benefits, can make the customers spend more and thereby increase regular transactions.

Co-branded Card Benefits for the Co-branding Partner

Brand visibility: The co-branding partners are the front face to provide/explain the rewards and benefits to the customers. Thus, they get more brand visibility by directly communicating with the customers.
Customer retention: Co-branded cards can create a stronger and more loyal customer base since customers prefer a specific brand’s card within a category.
Increased revenue: Due to the milestone benefits and other rewards, co-branding partners can generate more revenue.

Disadvantages of the Co-branded Cards

While co-branded bank cards are beneficial in many ways, not all co-branded cards could attract many customers. Some challenges make it difficult for the issuers and co-branding partners to enter into the partnerships.

Brand credibility: Brand partnerships are mostly long-term and if one brand fails or loses its goodwill, all other brand partnerships are put at stake.
Partner dependency: Every stakeholder in the brand partnership is dependent on each other for multiple resources and demands. Such dependency becomes a challenge for brands that are willing to offer attractive rewards and benefits.
Customer perception misfit: The mismatch of the customer perception and the brand image makes it difficult to retain long-term customers resulting in customer loss or lesser adoption.

Thus, as fancy as it may look from an outer perspective, the co-branded credit card market has become highly competitive and one needs to offer extra and better than the other existing players.

Let’s have an overview of the co-branded credit card regulations to help you plan your partnership with other brands to issue co-branded credit cards.

Co-branded Credit Card Regulations

Before we understand the eligibility requirements to become a co-branding partner, let’s understand the difference between the issuer and the co-branding partner.

The issuer must be a bank or a non-bank company approved by the RBI. However, the co-branding partner can be any non-bank entity from any industry (travel, hotel, etc). In fact, a non-banking financial company (NBFC) can also become a co-branding partner.

Eligibility: Who Can Be a Co-branding Partner?

The eligibility requirements for the co-branding partner are divided into two categories:

NBFC must have net owned funds of ₹100 crores or more. The last two years’ audited balance sheet must be available. The ratio of net NPA to net advances must be less than 3%.	The co-branding partner is a non-bank company (travel, retailer, etc)
The issuing bank must perform due diligence to assess and mitigate the reputational risk.	NBFC must have net owned funds of ₹100 crores or more. The last two years’ audited balance sheet must be available. Ratio of net NPA to net advances must be less than 3%.

Risk sharing

Risk sharing in a co-branding partnership agreement means that the co-branding partner will share the credit risk (risk of non-payment) of the credit card customer and show the risk on its balance sheet.

While a non-bank entity is allowed to enter into an arrangement on a risk-sharing basis, an NBFC can only agree to partner on a non-risk-sharing basis as per the RBI guidelines.

Reputational risk

The reputational risk is the risk of loss of reputation due to a default in the performance obligation by a co-branding partner. Hence, the issuing bank needs to take clear steps while entering into an agreement with the co-branding partner to not transfer the customer credit risk exposure.

Thus, a precise and compliant co-branding agreement should exist in writing to include all relevant clauses required by the RBI.

That takes us to our next section on what is the future of co-branded cards in India. How key trends are driving the competition of the co-branded card players? Let’s see some of the co-branded credit card trends shaping the future of credit cards in India.

Future of Co-branded Cards: Key Trends

Credit card spending in India in September 2022 surged 14% from its level in 2020 despite a reduction in the number of active credit cards due to a strict clean-up process followed by some banks.

The rise in the total spending on the cards is mainly because more customers are using co-branded cards since they provide attractive rewards. The rewards and benefits of these cards are customised in a way that suits one’s lifestyle and spending behaviour.

Let’s see what’s coming in the future for these co-branded credit cards.

Pro Tip: Growth of Startups In India

Increased Use of Digital Platforms for Partnerships

The issuers and the co-branding partners have started adopting digitised platforms to provide co-branded cards. These interactive platforms can communicate the needs of the customers more effectively with the issuers and partners.

Offering rewards for signing up for credit cards, and providing robust tech solutions for digital acquisition are some of the trends going to be seen in the future.

Co-branded Cards for Expense Management:

One of the most important trends in co-branded cards is that issuers will focus more on providing cards that will help reduce business expenses. Hence, more partnerships will happen in the business expense management segment.

Entering Untapped Segments:

The issuers are moving towards entering new segments such as mass transit, smart cities, healthcare, hospitality and transportation aggregators since they are expecting to make new customers.

Capturing a Diversified Portfolio:

Issuers will partner with more than one co-branding partner to issue cards from the same industry to diversify their partner portfolio.

Thus, Partner portfolio diversification, new customer segments, expense management cards, digital platforms, etc., are going to be the future trends for co-branded cards in India.

FAQs on Co-branded Cards

What are co-branded credit card pros and cons?

While co-branded credit cards offer amazing rewards and benefits, it may be difficult for customers to own multiple co-branded credit cards for different segments (e.g., separate cards for travel, lifestyle and hotel stay rewards)

Are co-branded credit cards easier to get?

Yes, co-branded credit cards can be issued instantly if the customer’s KYC with the issuer bank is complete.

How do banks make money on co-branded cards?

To pass on the rewards and benefits to the customers, banks pay premiums to the co-branding partners. While the banks earn by charging fees on the co-branded cards such as reward redemption fees, cash advance fees, and cash processing fees.