How Do Co-Branded Credit Cards Work?

While applying for credit cards (CCs), you must have come across the term co-branded cards, or you probably own one. These are credit cards issued by various merchants that offer exclusive benefits and rewards for brand-loyal customers. So, if you prefer doing most of your shopping at one brand, you can get such a credit card.

Read on to understand the functionalities of co-branded credit cards and how to make the most out of these cards.

What are Co-Branded Credit Cards?

Co-branded credit cards are part of a brand’s loyalty program scheme. In this scheme, a merchant partners with a credit card issuer and offers exclusive company-specific rewards to loyal borrowers on credit card purchases. Many top brands offer co-branded credit cards to retain loyal customers.

Some of the sectors actively participating in co-branding schemes are airlines, travel agencies, hotels, restaurants, sports agencies, etc. They are often used by credit card holders to claim benefits like air miles, frequent flyer program membership, free merchandise, and discounts.

Apart from the brand-based benefits, co-branded credit cards work similarly to any other ordinary credit card. You can use your co-branded credit card to make purchases outside of the products or services offered by the associated company. However, you may not be eligible for rewards in that case.  

You must be wondering how credit card issuers or corporations benefit from the scheme. Let us jump into the functionalities of co-branded CCs to have a lucid understanding.

How do Co-Branded Credit Cards work?

Co-branded credit cards were introduced in India in 1996, keeping the merchant and the creditor’s interests in mind. A sponsorship scheme was put forward, to endorse brands and help them retain a loyal customer base through credit cards.

This is a hybrid credit facility, that would act as any traditional credit card, but would have exclusive access to rewards and perks offered by the sponsoring merchant. The rewards attracted or hooked borrowers to avail more credit, which worked in the favour of the creditor as it earned them higher income from interest. On the other hand, the merchant received a percentage of the transactions made via the credit card. 

Let us understand the concept with an example. 

Suraj frequently travels with ABC Airlines, which sponsors a co-branded credit card that he possesses.

He claims several rewards by using his credit card to make purchases, let it be flight bookings, hotel expenses or any other services offered by ABC Airlines. In this case, ABC Airlines will earn a part of the transaction amount and would reward Suraj with air miles. Air miles are redeemable reward points which allow passengers to fly for free up to certain miles.  

Thereafter, Suraj can use the accumulated air miles to redeem discounted or even free air tickets for his next trip. Subsequently, Suraj was able to travel to some exotic locations in India and abroad at affordable rates.

These rewards are not limited to airlines, but to any retail or service-based merchants like super malls, hotels, restaurants, etc. 

What are the benefits of a Co-Branded Credit Card?

  • Exclusive loyalty rewards and perks

As stated before in the example, brand-loyal credit card holders can claim reward points on every purchase made through the co-branded credit card. One can redeem these rewards and avail discounted or free perks and benefits.

Furthermore, owning a co-branded credit card may get you registered for exclusive memberships. In Suraj’s example, he got registered for the airline’s frequent flyer program. 

  • Accepted internationally

One can avail the benefits of co-branded credit cards from any of the company’s business outlets abroad.Furthermore, generated credit bills will be in Indian currency. Hence, you will not have to worry about foreign currency exchange.

  • Customisation

Co-branded credit cards help borrowers customise their credit card usage as per their requirements. One can set their spending limit, activate or deactivate international transactions, specify international transaction limits, etc., according to their financial requirements.

  • Fee waiver

Most of the co-branded CC issuers offer a waiver of the joining fee or annual fee if the borrowers spend a specified amount via their credit card in a given time frame. However, this service varies according to different credit card issuers.

  • Free merchandise and joining bonus

Regularly using a co-branded credit card for up to a certain limit can help you earn freebies as a reward for your loyalty to the brand. This may include free tickets to a music concert or cricket match.

Furthermore, co-branded credit cards may also provide joining bonuses which may include subscriptions, reward points, etc.

What are some precautions to consider for Co-Branded Credit Cards?

  • Lack of available options

As mentioned earlier, a co-branded credit card may only reward you on purchases made on the sponsored brand product or services. It may not always be feasible to avail the associated venture, and as a result, you miss out on rewards.

  • Compare reward points

Before applying for a co-branded credit card, you must select a card that adds the most value because of your credit card spending. This is because the redeemed value of reward points varies according to different brands and issuers. For example, company A’s 200 reward points may be equivalent to gifts worth ₹200, whereas company B’s 200 reward points could be only ₹150.

  • Risk of overspending

The offers on co-branded credit cards change from time to time, with new and upgraded benefits and features. However, you must not exceed your credit utilisation percentage of around 30%. Otherwise, it may affect your credit score, which can bring down your creditworthiness.

Final Words

The article above has mentioned the functionalities of co-branded credit cards in detail allowing you to enjoy the exclusive perks and benefits. However, before you apply for a co-branded credit card, make sure that you read out the terms and conditions as provided by the issuer. Also, check if the issuer is offering a waiver of the joining and annual fees. 

Frequently Asked Questions

  1. What are some top companies offering co-branded credit cards in India?

Some prominent co-branded credit cards are SBI SimplyCLICK, Axis Bank ACE, Axis Bank MY ZONE, IDFC First Classic, etc. 

  1.  Do reward points in co-branded credit cards expire?

Rewards points in credit cards can generally expire. However, some premium credit cards offer non-expirable reward points. You must contact your credit card issuer to check your reward point’s validity.

  1. Can I withdraw money from a co-branded credit card?

As a co-branded credit card works similarly to any ordinary card, you can use it to withdraw cash via an ATM. However, it may levy some charges for the services.

  1. What are some limitations of co-branded credit cards?

Firstly, most co-branded credit cards limit rewards to the brand partnered with the card issuer. Many times, these rewards are not transferable which makes them inflexible. Moreover, co-branded cards tend to carry higher APR than other credit cards.

Darshan is an up-and-coming Investment analyst making headway in the field of capital markets. He has completed his Chartered Accountancy and CFA Level 1 exam. He is currently working as a Credit Associate in Wint Wealth.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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