Co-Branded Cards

Introduction

Innovation is a never-ending process, especially in the world of finance. You get to see new technologies opening doors to new financial products, resulting in a new channel. Today, we have an array of credit card options to choose from, but you might not have heard about some of them. If you would have known that a certain card like this is available in the market, then your task would have been finished in a much less time.

So, it’s crucial for every user to be abreast of the developments in the credit landscape to get your hands on the ones that work for you. The incessant changes in the lifestyle and spending habits of the people has brought in new credit cards into the marketplace. This tutorial talks about one particular credit card called the co-branded card. Have you ever heard about this card? What’s the purpose of it? Read ahead to get the gist of this concept.

Define Co-Branded Cards

Co-branded card is one type of credit card issued by a retail merchant to the end users in collaboration with a certain credit card issuing agency. The users get to see the partnered logo of both issuing and merchant’s brand on the card. Meaning, this credit card is designed and issued by two brands. With this card, users can avail all the services, offers, and deals these brands bring to the table. Airline industry is the first sector to incorporate this card.

How do co-branded cards work?

The functionality of the co-branded card is the same as the regular credit card, but with some added perks and features. One can use these cards both domestically and globally.

Just like regular credit cards, you’ll get cashbacks, merchant discounts, and reward points upon using the co-branded cards. To come up with such a credit card, the retail merchant (supermarket, hotel, airlines, etc.) has to associate with a financial partner (MasterCard, Visa, etc.). In some cases, the merchant’s acquiring bank does the whole debit and credit transactions, but in other cases, they handover the financial processing to third parties.

The former scenario involves only two partners, i.e., bank and merchant, whereas, the latter consists of three, i.e., bank, merchant, and third party dealing with the transactions. This kind of approach only adds value to both the brands in terms of visibility, customer base, and revenue, but also enhances customer experience by offering a wide array of financial services at one place.

Before moving forward with brand partnerships, there are some legitimate rules that needs to be considered in the first place. The issuing partner can either be a bank or non-bank or NBFC, but they should be under the authorization of Reserve Bank of India. They should have clear and transparent audited records of past two years. If it’s an NBFC, they should be having owned funds worth of Rs 100 crores or above.

Moreover, when it comes to risk, both the partners should be entitled to share the risk and show the same in their respective balance sheets. According to the RBI norms, the NBFCs can enter the contract on non-risk sharing basis. When it comes to reputation risk, no brands want to lose it at any cost. So, the issuing financial institution should state these aspects in written and get the agreement duly signed and stamped. Upon failing to follow the pre-agreed guidelines, the respective party has the right to take legal action.

Pros of co-branded cards

• World-Wide Acceptance − These cards are widely accepted across the globe due to its binding association with merchants and financial brands. One can transact at any foreign outlet by using these cards without fretting about exchanging currency.

• Deals and Rewards − Since two brands are partnered together in making and issuing this card, the customers gets to enjoy the deals and rewards from both the brands. They offer special benefits like cashbacks, discounts and amazing deals on purchases to specific loyal users.

• Enjoying premium services − Not every card user can avail premium benefits, but with co-branded cards, that’s possible. Some of the premium benefits includes free entry to airport lounges, big community spaces, book clubs, golf clubs, etc. In some cases, they add points to the card directly where you can avail them at certain places.

• Points on utilizing the services − Co-branded cards also offer milestone points if one uses their cards for traveling purposes like booking air tickets and hotel rooms, etc. These points are given as a booster for customers for using their cards and services.

• Offers from both brands − As the name suggests, customers of co-branded cards get benefits from two associated brands, i.e., issuing agency and merchant brand. Those who spend frequently using these cards get to enjoy freebies and merchandises offered by partnered brands.

Cons of co-branded cards

• Brand value − Goodwill is everything for any company, as it represents the way the world sees them as. The value of goodwill differs from company to company, based on their size and market value. For instance, the goodwill of Apple is comparatively higher than other alternative substitute brands. Since co-branded cards involve two partners or more, if one falls down, the brand value of other might also get impacted.

• Competition and Perception − Take any product in this entire world, there’s always a substitute sitting in the corner to take the chance of winning customers’ heart if the main player plummets to the ground. So, managing and matching the customers demand and perception can be a daunting task for brands. Sometimes, customers don’t get everything they want or need from one or two brands. Hence, may not find these cards very useful at a later stage. Due to incessant competition and mismatch of customers’ perception, it’s not easy to retain existing ones and add new ones.

Examples of co-branded cards

The advent of technology and increase in smartphone users gave rise to new opportunities in the financial space. Say, the payment aggregators like GPAY, Paytm, PhonePe – all such similar apps work along with other financial brands connected to it. One has to connect their bank account to the payment aggregator to use their financial services. If you are an HDFC customer connected to a payment aggregator, you’ll receive services and benefits from two partnered brands. Amazon Pay is another best example for co-branded cards.

Conclusion

Co-branded cards are simply credit cards issued by merchant dealer in association with an acquiring or partnered bank or non-bank or NBFC to offer mutual financial services to the end customers. This joint issue comes with respective brand logos on the credit card. Users of this card get benefits from both the partnered brands such as freebies, cashbacks, freebies, discounts, merchandises, and much more interesting deals.

FAQs

Q1) What type of rewards are offered for co-branded card customers?

Ans) Co-branded card, as the name suggests, when used for any transaction, say, shopping or booking movie tickets or flight tickets, the respective user is rewarded with discounts, miles, cashbacks, coupons, and more.