More credit card issuers are likely to launch co-branded credit cards in 2023 in a bid to cater to digitally savvy customers who are new to credit, say bankers.
“Co-branded cards will continue to attract good market share in 2023 as well. The value proposition is strong. Some of these are distributed from partner platforms, which means extended distribution. These will continue to do well,” Sanjeev Moghe, president and head – cards and payments, Axis Bank, said.
Axis Bank has co-branding arrangements with various partners like SpiceJet, Vistara and Indian Oil Corp. To put things in perspective, a co-branded credit card is issued by a bank in association with a partner, which could be a retail partner, travel website, sports league or a hotel chain.
The card is sponsored by both these entities and is designed to carry the features of both. The credit underwriting and transactions in a co-branded arrangement are managed by the bank. On the other hand, the co-brand partner manages sales, marketing and special offers available on the card.
Typically, a co-brand relationship is based on ensuring that the card is activated and spends are driven on the card as a “preferred card” or a premium credit card, say bankers.
“Co-branded cards help companies expand their market share with newer markets and also create value for their current and potential customers,” Narendra Dixit, head – retail banking, CSB Bank, said. Banks are the link between companies and customers for payment, thus creating a much stronger value proposition. Revenue sharing is largely on the various income lines depending on the partnership arrangement.
Unlike other credit cards, a co-branded card offers sale reviews, reward point multipliers and discounts to customers that are loyal to the affiliated merchant’s brand.
Also, co-branded cards offer free merchandise to customers for spends exceeding specific amounts or redemption options, along with a frequent-flyer programme or frequent-buyer programme in cases where the co-branding partner is an airline or a retailer. Since co-branded credit cards are attached to a particular brand, customers can avail cards customised to their spend category and lifestyle requirements.
While some co-branded credit cards may come with a joining fee and an annual charge, most co-branded credit cards do not have transaction fees and also offer surcharge waivers for customers. These cards can be availed easily without paperwork.
Hence, the adoption of co-branded credit cards has gained traction among millennials, a generation known for its brand loyalty, say experts. “Credit cards themselves are growing at a fast pace and they are a very beneficial product if used smartly. The co-brand gives these unique offerings, due to which co-brands are scaling disproportionately fast within the pie,” Adhil Shetty, CEO, BankBazaar, said.
In fact, credit card disbursals on BankBazaar rose 103% year-on-year(YoY) in 2022, the financial product comparison platform disclosed in a recent report titled ‘Moneymood Retail Credit Trends’.
BankBazaar has co-branding tie-ups with YES Bank and RBL Bank.
Applications for reward cards on BankBazaar rose 48% YoY and those for premium cards rose 181% YoY. Also, average credit card spends during the lucrative Diwali season rose to Rs 5,049 in 2022 from Rs 3,400 in 2017.
Broadly, outstanding credit cards rose nearly 19% YoY to 80.7 million as on November 30, data from the RBI showed. This rise in outstanding cards has come even as various card issuers have been pegged back by the RBI’s recent guidelines asking card issuers to shut down inactive cards.
Even as credit card spends fell 11% quarter-on-quarter in November, experts say that co-branded credit cards will up the ante on rewards and customer convenience, with average spends likely to rise going ahead.