When choosing a co-branded credit card, it is important to weigh the benefits and the drawbacks. Read to know if co-branded credit cards are right for you as compared to credit cards that offer general reward points
In today’s fast-paced ‘digital’ financial landscape, credit cards have become an indispensable tool for managing expenses, earning rewards, and building credit. Among the various types of credit cards available, co-branded credit cards stand out because of their unique partnerships with specific brands or retailers. But are they the right choice for you?
A recent report by Redseer Strategy Consultants and Hyperface, Credit Cards as a Service (CCaaS) platform says that co-branded credit cards are rapidly outpacing traditional credit cards. The report highlights that in financial year 2024 (FY24), co-branded cards accounted for 12-15 per cent of the total credit cards, with projections showing that this share could exceed 25 per cent by FY28.
What Are Co-branded Credit Cards?
Co-branded credit cards are the result of a collaboration between a credit card issuer (usually a bank) and a particular brand, retailer, or service provider. These cards bear the branding of both the financial institution and the partner company. For instance, a co-branded credit card issued by a bank in partnership with an airline might feature both the bank’s logo and the airline’s name.
These cards are designed to provide exclusive benefits related to the partner brand, such as discounts, reward points, or cashback on purchases made with that brand. But the question remains, should you go for co-branded credit cards?
When choosing a co-branded credit card, it is important to weigh the benefits and drawbacks.
Says Satish Mehta, founder, Athena CredXpert (ACX) and first MD of Cibil, “On the upside, these cards often offer extra rewards for purchases with specific brands, along with perks, such as airline miles, priority check-in, early access to sales (for an airline co-branded card). They can also strengthen your loyalty to a particular brand. Additionally, some co-branded cards waive off foreign transaction fees, which is great for frequent travellers.”
“However, the downsides include potentially higher rates of interest and steep annual fees compared to regular credit cards. Co-branded cards can also limit your spending flexibility, as you might find yourself purchasing more from the partnered brand in order to maximise rewards,” he adds.
Here’s a gist of the benefits and drawbacks of co-branded cards.
Exclusive Benefits and Rewards: One of the main attractions of co-branded credit cards is the exclusive benefits they offer. For instance, an airline co-branded card might offer extra miles for every flight booked with that airline, while a retail co-branded card might provide higher cashback percentages for in-store purchases.
Enhanced Loyalty Programs: Co-branded cards often come with enhanced loyalty programs. Cardholders can earn points or miles faster than they would earn with a standard credit card.
Access to Special Events and Offers: Many co-branded cards offer exclusive access to special events, sales, or offers. For instance, a co-branded card with a fashion retailer might provide early access to sales or special discounts during festive seasons.
Brand-Specific Perks: Depending on the partner brand, cardholders might enjoy perks, such as free-checked bags, priority boarding, or complimentary hotel stays. These benefits can add significant value, especially for frequent travellers or loyal customers of the partner brand.
Waived Fees: Some co-branded credit cards offer fee waivers, such as waived foreign transaction fees or reduced annual fees, making them more cost-effective for frequent users of the partner brand’s services.
Higher Rate Of Interest: Co-branded cards can sometimes come with a higher rate of interest as compared to standard credit cards. If you tend to revolve your amount due each month, the increased rate of interest could well nullify the benefits of any rewards you might be reaping, effectively negating the overall benefit from the card.
Says Mehta: “The rate of interest on co-branded cards are usually influenced by the card issuer’s overall policies and the user’s credit profile. On average, the rate of interest on credit cards in India range between 24 per cent and 42 per cent per annum. Sometimes, the rate of interest on co-branded cards might be slightly higher due to the additional benefits and rewards that they offer. But if you are someone who regularly shops with the partner brand, the rewards might outweigh the slightly rate of interest.”
He adds, “Always read the fine print and consider your spending habits to ensure you are making the most of the card’s features without falling into the trap of high-interest debt.”
Annual Fees: Many co-branded cards come with annual fees, which can be higher than those on regular credit cards. While these fees are often justified by the benefits they provide, they may not be worth it if you don’t fully utilise the perks available on the cards.
But can the benefits of a co-branded credit card outweigh its annual fee and higher rates of interest?
Says Mehta: “Co-branded credit cards can really pack a punch with exclusive rewards, discounts, and perks that they offer, especially if you are someone who shops a lot with the partnered brand. In many cases, these benefits can more than make up for the annual fee and the higher rate of interest. But it’s important to take a good look at your spending habits and make sure you are actually taking advantage of those perks. If you do, the card’s costs can actually turn into savings and rewards over time. Also, if you pay your outstanding dues on time you do not need to worry about the high rate of interest.”
Limited Flexibility: The primary downside of co-branded credit cards is their limited flexibility. The rewards and benefits are often tied to the partner brand, which means you may not get as much value from the card if you don’t frequently use that brand’s products or services. For instance, if you hold an airline co-branded card but rarely fly with that airline, the miles you accumulate may go unused.
Complex Reward Structures: Co-branded cards may come with some complex reward structures, with different earning rates for various types of spending. Keeping track of these rates and ensuring you are maximising your rewards can be cumbersome and confusing for the unversed.
Devaluation Of Rewards: With co-branded cards, it is important to keep an eye on your rewards because their value can change over time.
Says Mehta: “Sometimes, the brand might tweak the program, thus leading to devaluation of your accumulated reward point. Also, if the partnership between the card issuer and the brand changes, it could affect how you earn or use your rewards.”
Final Choice
To get the most out of your reward points, stay updated on any changes and try to redeem your rewards regularly instead of letting them pile up.
So, are co-branded credit cards right for you as compared to general rewards card?
Says Mehta, “When it comes to choosing between co-branded credit cards and general rewards cards, the long-term value depends on how well the card fits your lifestyle. Both types of cards offer different benefits, but they cater to different needs.”
If you are someone who frequently shops at a particular store, flies with a specific airline, or refuels at the same petrol pump, a co-branded card could offer you significant perks over time. On the other hand, general rewards cards offer more flexibility.
Says Mehta: “The points or cashback you earn can be used across various categories, from dining to travel to shopping, without being tied to a specific brand. This makes general rewards cards ideal if your spending is spread across different categories. Over the long term, the flexibility of a general rewards card can offer better value if you prefer variety in your spending.”