Co-Branded Card

A co-branded card is a payment card that carries the name and logo of a commercial partner, such as an airline, hotel group, retailer or technology company, alongside those of the issuing bank and a card network. It can be used at any merchant that accepts the network, and it rewards the holder with benefits tied to the partner: miles, points, discounts or cash back on the partner's goods. Most are credit cards, though debit and prepaid versions exist.

The arrangement joins three parties with different strengths. The partner contributes its customer base and loyalty programme, the card issuer provides credit, regulation and servicing, and the network provides acceptance. It differs from a private label card, which works only at the retailer whose name it bears, and from a co-badged card, which carries two payment networks.

The issuer is the lender and the regulated entity. It approves applicants, sets credit limits and interest rates, owns the receivables, bears credit losses and fraud, handles statements and disputes, and is responsible for compliance with consumer credit law. The partner markets the card through its own channels and operates the rewards currency. The card network licenses its brand, processes transactions and often contributes marketing funds or incentives to win the programme for its brand.

The relationship is governed by a long-term contract, commonly five to ten years, that sets out how revenue and costs are divided, who owns the customer data, service standards and what happens at the end of the term.

Income from a co-branded credit card comes from the interchange fee on purchases, interest on revolving balances, annual fees and other charges. The issuer shares this with the partner in several ways.

• Purchase of rewards. The issuer buys points or miles from the partner to award to cardholders for spending. For large airlines this is a major source of cash.
• Bounties. The issuer pays the partner a fee for each new account opened.
• Revenue or profit sharing. Some contracts give the partner a percentage of interest and fee income, sometimes with a share of credit losses.
• Signing payments. An issuer may pay a substantial sum up front to win or renew a large programme.

The partner also gains indirectly. Cardholders tend to spend more with the brand and to be more loyal, and purchases at the partner's own outlets may cost less to accept. For the issuer, the partner's channels lower the customer acquisition cost and tend to attract customers who use the card heavily.

Travel cards are the best-known form. Airline and hotel cards award the partner's loyalty currency and add benefits such as free checked bags, priority boarding or elite status. The value of these programmes became evident in 2020, when several United States airlines raised debt secured on their loyalty schemes, whose cash flows depend largely on sales of miles to card issuers.

Retail cards offer discounts or enhanced rewards at the retailer, and many retailers run a co-branded card for general use beside a store-only card for customers who do not qualify. Other programmes are tied to fuel brands, car makers, sports teams, universities and charities, the last sometimes called affinity cards. Technology and e-commerce companies have launched cards that are managed mostly through an app.

When a contract ends, the partner may move the programme to another bank or network. The outgoing issuer usually sells the portfolio of accounts and balances to the incoming one, and cardholders receive new cards. Such transitions are large operational projects involving card reissue, data migration and customer communication. In a widely noted example, the warehouse retailer Costco ended a long exclusive relationship with American Express in the United States in 2016 and moved its card to Citi on the Visa network.

The size of the biggest programmes gives partners strong bargaining power, and issuers have at times agreed terms that left them thin margins. A partner's financial trouble also poses a risk to the issuer, since the appeal of the card depends on the value of rewards that only the partner can honour.

The issuer remains responsible for how the card is marketed, even when the partner's staff promote it. Regulators have taken action over sales practices at shop counters and over promotional financing terms that customers did not understand. Rewards programmes have drawn scrutiny where points were devalued or benefits changed after customers had signed up.

Programme economics depend on interchange. Where interchange is capped at low levels, as in the European Union, rich co-branded rewards are harder to fund, and such cards are less common than in the United States. Proposals to regulate credit card interchange or routing are therefore opposed by airlines and other partners as well as by issuers. Critics note that rewards are funded in part by merchant fees that are passed on to all shoppers, an effect discussed under card rewards cross-subsidy.

Many newer cards are co-branded in a looser sense. A software platform or consumer brand launches a card in its own name, with a small bank as issuer of record under BIN sponsorship and a processor supplying the technology. The bank's name appears in small print on the back, and network approval of the card art is required as for any card.