Rewards or Regrets? Navigating the Boom of Co-Branded Credit Cards

Co-branded credit cards aren’t new to those who relish cinema, culinary delights, or travel. Perhaps you are a cardholder yourself. It’s exciting to note that, according to the Reserve Bank of India’s December 2023 data, 97.9 million credit cards were active, with an unprecedented 1.9 million new cards issued that month.

Further, 2023 saw a significant increase in credit card issuance, with 16.71 million new cards entering the market, exceeding the 12.24 million introduced the previous year. By April 2023, the credit card count had surpassed 86 million, representing a robust 15% increase over the same month in 2022.

Zooming in on the niche of co-branded credit cards for the year 2023, they constituted approximately 10-12% of the total credit card portfolio. This portfolio spans an array of sectors, such as shopping, food, travel, and fuel.

The Amazon Pay-ICICI and Flipkart-Axis credit cards, which have a combined circulation of ~8 million, lead the pack in this category. These co-branded cards have carved out a significant niche, accounting for one-third of all new credit card issues in India’s current market.

Let’s examine co-branded credit cards and determine whether they’re worth celebrating or just a fad.

What are Co-branded Credit Cards?

Co-branded credit cards are issued under the joint sponsorship of a financial/lending institution (Bank), a non-financial group (retail merchant), and a Card network (Visa/Mastercard/Rupay). These cards are specially designed to integrate the issuer’s credit facility with the partner entity’s brand-specific rewards and benefits (such as Cashbacks, exclusive discounts, or priority services).

Key Characteristics of Co-branded Credit Cards

• Dual Branding: They feature the logos of the issuing bank and the partner brand, symbolizing the joint venture.
• Targeted Rewards: Cardholders receive rewards, discounts, or points on purchases made from the partner brand, incentivizing brand loyalty.
• Exclusive Perks: These cards often come with exclusive benefits such as early access to sales, special discounts, or VIP services.
• Enhanced Customer Experience: By aligning the card features with the partner brand’s offerings, customers enjoy a seamless and improved shopping experience.
• Market Expansion: For brands, these cards serve as a tool to expand their market reach and customer base. Co-branded credit cards aim to provide value to consumers and the brands they choose. They represent the intersection of financial services and consumer loyalty, fostering a mutually beneficial relationship between the cardholder and the brand.

Some of the Popular  Co-branded Credit Cards in India

Credit Card	Features	Benefits	Usage Category
Standard Chartered EaseMyTrip  Credit Card	20% discount on hotel bookings, 10% discount on flight bookings	Savings on travel bookings via EaseMyTrip	Travel
Yatra SBI Card	Yatra.com vouchers worth Rs. 8,250 on joining, up to Rs. 4000/- off on flight bookings	Discount on travel bookings via Yatra.com	Travel
MakeMyTrip ICICI Signature Credit Card	Up to 8 complimentary visits to domestic airport lounges, My Cash rewards	Lounge access and rewards on travel spending	Travel
IRCTC SBI Card Premier	10% value back on train bookings, rewards redeemable on IRCTC	Savings on train travel and redeemable rewards	Travel
Marriot Bonvoy HDFC Credit Card	Complimentary Silver Elite Status, 4X points on spends at partner hotel	Elite status benefit and accelerated points earned at the hotel	Hotel
Club Vistara IDFC First Credit Card	CV points as activation benefits, Premium Economy tickets as welcome and milestone benefits	Air miles and ticket benefits for frequent flyers	Airlines
Axis Bank Vistara Signature Credit Card	Free Premium Economy Class Tickets, Club Vistara Silver membership	Complimentary flights and airline membership perks	Airlines
Amazon Pay ICICI Credit Card	Up to 5% Cashback on Amazon spends, 1% cash back on other expenses	Cashback on Amazon and other purchases, fuel surcharge waiver	Shopping, Everyday Use
Flipkart Axis Credit Card	Up to 5% cashback on Flipkart and Myntra spends	Cashback on Flipkart and other purchases, lounge access	Shopping, Travel

Benefits of Co-branded Credit Card for Consumers

Exclusive Rewards and Offers

Cardholders typically receive brand-specific rewards and offers, such as bonus points, discounts, or cashback on purchases. These cards typically offer higher credit limits, special discounts, and perks.

Travel Perks: Co-branded credit cards offer benefits such as waived baggage fees, priority boarding, and access to airport lounges for airlines.

Hotel Benefits: Hotel co-branded cards may offer room upgrades, late checkout, and elite status for hotels.

Wider Acceptance: Co-branded credit cards have broader acceptance and can be used anywhere the card’s network is accepted, allowing for greater flexibility.

Benefits of Co-branded Credit Cards for the Banks

• Increased Customer Loyalty: These cards promote stronger loyalty by providing rewards and exclusive privileges tied to the partner brand, resulting in increased card usage and retention.
• Broaden Customer Base: By collaborating with established brands, banks can reach a larger audience and acquire new cardholders through cross-promotion efforts.
• Increased Revenue Streams: Banks can earn more through annual fees, interchange fees, interest charges, and a portion of the revenue from partner brand transactions.
• Brand Differentiation and Prestige: Working with reputable brands can help banks gain credibility and prestige, giving them a competitive advantage in the market.
• Targeted Marketing Opportunities: Co-branded cards allow banks to promote their services to a specific audience, increasing market presence and attracting new customers.

Drawbacks of Co-branded Credit Cards You Must Know

• Limited Use: Co-branded credit cards are often restricted to specific brands or retailers, limiting their versatility compared to general-purpose cards.
• High Interest Rates: These cards can have a higher APR (Annual Percentage Rate) than traditional credit cards, which range from 38-42%. The APR is the interest rate incurred by users if they fail to pay their bills in full, making them costly for users who carry a balance.
• Complex Rewards Structures: The rewards programs can be complex and difficult to navigate, potentially diminishing their perceived value.
• Overspending Temptation: Tailored rewards and brand-specific discounts may encourage unnecessary spending, leading to debt accumulation.
• Reward Devaluation: Points or rewards earned can be devalued over time, especially if the issuing companies change their policies or undergo mergers.

While co-branded credit cards offer unique benefits, consumers need to be aware of these potential drawbacks to make informed financial decisions.

10 Tips for managing credit score while using these cards

1. Pay On Time: Timely payments are crucial. Set up reminders or automatic payments to avoid late fees and negative impacts on your credit score.

2. Monitor Your Credit: Regularly check your credit report for errors or discrepancies. Address any inaccuracies promptly to maintain a healthy score.

3. Keep Credit Utilization Low: Aim to use only a small percentage of your available credit. Utilization of the full limit can hurt your CIBIL score.

4. Avoid Opening Too Many Accounts: While co-branded cards can be tempting,  applying for multiple co-branded cards can affect your credit score due to hard inquiries and the potential for increased credit utilization.

5. Diversify Your Credit Mix: Having a mix of credit types (credit cards, loans, etc.) can positively impact your credit score.

6. Limit New Credit Applications: Each credit inquiry affects your score, so be selective when applying for new credit cards.

7. Stay Within Your Budget: Co-branded cards may offer enticing rewards, but don’t overspend. Stick to your budget to avoid debt accumulation.

8. Maintain Long-Term Relationships: Keep older accounts open, as the length of credit history contributes to your credit score.

9. Avoid Closing Accounts Abruptly: Closing a credit card account can impact your credit utilization ratio. Consider keeping old accounts open.

10. Educate Yourself: Understand the card agreement,  terms and conditions that we commonly overlook, and hidden fees that may apply associated with your co-branded card. Make sensible choices to protect your credit rating.

The Bottom Line

Co-branded credit cards are a great choice if you enjoy extravagant dinners, comfortable hotel stays, and frequent air or train travel. If not, they may not be the best choice for you.

Lucrative deals, rewards, and cashback are undoubtedly a benefit of purchasing these cards, but you must also consider higher interest rates, increased spending habits, and the risk of falling into a debt trap.

Remember that using credit cards responsibly, whether co-branded or not, is critical to maintaining a good credit score. As a result, before making a final decision, review the article and consider the potential risks and rewards of purchasing a Co-branded credit card, which we have discussed in detail above.

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