Co-branded credit cards are the product of a mutual partnership between a particular merchant and a credit card issuer and network. Together, they work to create a credit card that bears the merchant’s name and provides merchant-specific benefits to brand-loyal consumers but can also be used to make purchases anywhere. As a result, not only do cardholders gain rewards and discounts from the brands they are most loyal to, but affiliated merchants also acquire a larger customer database.
Key Things to Know About Co-Branded Credit Cards
- Notable examples of co-branded credit cards include the Costco Anywhere Visa® Card by Citi, the Amazon.com Credit Card and the The World of Hyatt Credit Card.
- The cards work like regular credit cards and can be used anywhere.
- Rewards are tailored specifically to the services offered by the affiliated merchant.
- You receive the highest rewards earning rates from the purchases you make directly with the affiliated merchant.
- Many co-branded credit cards charge annual membership fees in order to support their generous rewards programs and encourage frequent use.
To learn more about co-branded credit cards – in terms of how both consumers and merchants can make the most of them – check out the sections below.
Consumer Perspective
Merchant Perspective
- How Do Merchants Establish a Co-Branded Credit Card?
- Should Your Company Get a Co-Branded Credit Card?
- Pros & Cons of Having a Co-Branded Credit Card
Co-Branded Credit Cards for Consumers
Co-branded credit cards can be used anywhere, similar to the way regular credit cards function. The difference is that the rewards offered by a co-branded credit card are tailored specifically to the services offered by the affiliated merchant. You’ll typically receive the highest rewards earning rates from the purchases you made directly with the affiliated merchant. Although you will also receive rewards from your other purchases, they will most likely be offered to you at lower rates. So, you should opt for a card from a brand that you know you will make regular transactions with.
For example, if you fly with United Airlines often, you should opt for a United Airlines “Mileage Plus” card, where you can receive rewards from United Airlines, such as free airline miles, lounge access or checked-bags. There’s no point in getting a credit card from a different airline that you don’t use frequently.
That said, it might be tempting to get credit cards affiliated with all of your favorite stores, thinking you can simply use each on a sporadic basis when you shop with the respective retailers and then stockpile the rewards you earn for future benefits. Spreading yourself too thin in this manner is a mistake for two reasons.
- You’ll end up paying multiple annual fees. Co-branded credit cards typically charge annual membership fees in order to support their generous rewards programs and encourage frequent use. You therefore need to make sure the rewards you earn will outweigh the cost of the card. This is difficult with more than a couple of cards.
- You’ll risk devaluation. Merchants can change the number of points or miles needed for certain perks whenever they want, thereby devaluing any large stores of rewards that you’ve been saving up. That’s why it’s best to only get a card whose rewards you can redeem on a regular basis.
We recommend getting no more than a few different co-branded credit cards. This will enable you to maximize the benefits you receive from each without overburdening yourself or spreading your rewards accumulation too thin.
Co-Branded Credit Cards vs. Store Cards
Co-branded credit cards are often confused with private label credit cards, colloquially known as store cards. Store cards are more restrictive and can only be used at their respective retailers’ stores. Co-branded credit cards, on the other hand, function like any other regular credit card.
Differences Between Co-Branded Credit Cards and Store Credit Cards
| Info | Co-Branded Credit Card | Store Credit Card |
| Approval Requirements | Typically requires good credit | Can get approved with fair credit |
| Usage | Can be used anywhere | Can only be used at the affiliated merchant’s store or its online website |
| Rewards | Higher rewards rates on purchases from the affiliated merchant (can earn rewards anywhere) | Only earn rewards with purchases from the affiliated merchant |
| Interest | Similar APR to regular credit cards | Higher APR than regular and co-branded credit cards (deferred interest offers are common) |
How Do Merchants Establish a Co-Branded Credit Card?
In order to establish a co-branded credit card for your company, you must first decide which credit card network works best for you. American Express is generally more selective in terms of the merchants it is willing to work and co-brand with, but Visa, Mastercard and Discover are all great options.
Each network will require you to draft a business outline of your company and its demographics, determine which issuer within the network of your choice you want to work with, write a proposal to the selected issuer, and lastly, establish a contract with the issuer.
Although that is the general plan of action, each credit card network has its own specific instructions. The process usually takes a minimum of 6 months, so plan ahead and prepare accordingly.
| Credit Card Network | Available Resources |
|---|---|
| Visa | Online Instructions |
| Mastercard | Online Instructions+Email |
| Discover | Online Instructions |
| American Express | Information Not Available Online |
Should Your Company Get a Co-Branded Credit Card?
To determine whether it is worth a shot for your company to establish a co-branded credit card, there are a number of important elements that you must take into consideration. It is integral to review these factors because you want to ensure that you aren’t wasting your time and money in creating an ineffective credit card program. Use our checklist below to determine whether co-branding is the right option for you:
- My business prompts repeated customer transactions
- My business has a significantly large database of customers
- Either my business or my competitors have a customer rewards/points program
If you were able to check all of the boxes above, then you should legitimately consider setting up a co-branded credit card.
Pros & Cons of Having a Co-Branded Credit Card
While the novelty of seeing your company’s logo in people’s wallets might seem appealing, you need to first thoughtfully weigh the pros and cons of co-branding before you enter the space.
Pros
- Customer Loyalty: Having a co-branded credit card often leads to substantial growth in customer loyalty. Your existing customers will be less likely to turn to your competitors as they know they can reap better benefits and rewards if they make their purchases with you.For example, if you have a co-branded credit card for Macy’s, you will most likely make all of your purchases there instead of JCPenney (since you know that you’ll be able to earn rewards and therefore get an effectively discounted price).In addition, your brand name will have increased visibility as customers – and everyone around them – will be exposed to it every time they reach for their credit card. Not only does this ensure their loyalty, but it also strengthens it.
- Customer Growth: Co-branded credit cards also win you new followers in addition to securing your existing customers, especially if you give lucrative and practical rewards. Someone who used to shop with your competitor might opt to shop with you now.For example, an individual who normally flies with American Airlines might begin flying with United Airlines simply because United Airlines offers a better rewards deal on their credit cards. Not only does this increase your customer base, but it also cuts down your acquisition costs as your co-branded credit cards do the marketing for you.
- Lower Costs: One of the biggest costs that retailers complain about are interchange fees on credit cards. Under the terms of most co-branding relationships, retailers are absolved from paying these fees for transactions made using their co-branded credit cards.
- Shared Consumer Loyalty: When a credit card issuer and merchant decide to co-brand a credit card together, they inevitably pool their customer databases, too. This symbiotic alliance enables the issuer to access the merchant’s customer base and vice versa.For example, Chase might gain new followers simply because the consumers desired a Macy’s credit card. On the flipside, Macy’s might acquire new customers simply because the consumers were regular customers with Chase. As a result, both parties achieve increased visibility and exposure with the public.
Cons
- Misalliances: For the same reason that someone would pick your co-branded credit card due to the affiliation with your partner brand, they might reject it if they dislike your partner. In other words, shared consumer loyalty could backfire. This isn’t likely to be too big of an issue, though, as most consumers will be oblivious about which bank issues their card.
- Managerial Attention: A successful credit card program necessitates significant resources and attention. Your company must therefore be comfortable making the requisite investment in order to get value from a co-branded credit card or risk turning it into an overall negative brand experience.
Co-Branded Credit Cards for Consumers
Co-branded credit cards can prove to be useful and cost-effective once you understand how they work. Essentially, these cards can be used anywhere, similar to the way regular credit cards function. However, the rewards offered by a co-branded credit card are tailored specifically to the services offered by the affiliated merchant.
For example, when you use your United Airlines “Mileage Plus” card, you’ll receive rewards from United Airlines, such as free airline miles, lounge access or checked-bags. After all, you wouldn’t expect to receive benefits from American Airlines when you use your United Airlines “Mileage Plus” card, right?
When you receive benefits from a co-branded credit card, note that you receive the highest rewards earning rates from the purchases you made directly with the affiliated merchant. Although you also receive rewards from your other purchases, they will most likely be offered to you at lower rates. Therefore, in order to fully reap the rewards available, opt for a card from a brand that you know you will make regular transactions with.
With that said, it might be tempting to get credit cards affiliated with all of your favorite stores, thinking you can simply use each on a sporadic basis when you shop with the respective retailers and then stockpile the rewards you earn for future benefits. Spreading yourself too thin in this manner is a mistake for two reasons.
First of all, co-branded credit cards typically charge annual membership fees in order to support their generous rewards programs and encourage frequent use. You therefore need to make sure the rewards you earn will outweigh the cost of the card. This is difficult with more than a couple of cards. Secondly, merchants can change the number of points or miles needed for certain perks whenever they want, thereby devaluing any large stores of rewards that you’ve been saving up. That’s why it’s best to only get a card whose rewards you can redeem on a regular basis.
We recommend getting at most two different co-branded credit cards. This will enable you to maximize the benefits you receive from each without overburdening yourself or spreading your rewards accumulation too thin.
