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in/consulting/financial-services/fintech/dp/demystifying-the-co-branded-
cards-industry.html
Payments has been at the forefront of technological advancements in the banking
industry. The first credit card in India was launched in 1981 by a then leading public
sector bank. By 1996, the concept of co-branded cards, where two parties typically
an issuing bank and a corporate/merchant join hands to offer a product which
encompasses the best of both worlds, was introduced in the country by leading
foreign bank in association with a consumer durables brand. The marketing strategy
was to bring out the “smart way”of buying consumer durables and earn points for
every purchase done using the card.
Study of popular co-brand cards in India reveals travel as the prominent use case
amongst various use cases followed by fuel, etail, retail shopping. These segments
offer tangible benefits like complimentary tickets, shopping vouchers etc. which leads
to instant gratification for the customers.
Benefits for cardholders
Customised offers like welcome benefits, discounts, vouchers
Milestone benefits like complimentary movie, travel, stay
Additional benefits like insurance, air lounge access, golf access
Traditionally, co-branding was popular in credit cards but with emergence of new use
cases like transit, meal etc. issuers are tapping the opportunity with prepaid and
debit cards too. With the introduction of Smart City Program by Government of India,
Banks are partnering with municipality/metro/bus authority, there is a significant push
to issue cobranded prepaid / debit cards which is enabling citizens to just walk
through the public transport and use the same card for shopping or making payment
at any store.
As per the guidelines, issuers need not take approval from RBI for selection of co-
brand partner. However, they need to follow KYC, AML, Combating of Financing of
Terrorism (CFT) norms.
Why Co-brand?
Issuers
Access to a focused customer base
Increased average spends per card
Improved customer stickiness
Partners
Contribution to top and bottom line with shared revenue
Better brand visibility
Enhances customer loyalty
Popular segments & their benefits
TravelCashback, Voucher, Lounge access
FuelValue back, Surcharge waiver
E-tailPerennial flat discounts, reward points
ShoppingComplimentary membership, accelerated rewards
LifestyleInvite to Premium events/experiences
HotelsComplimentary stay, discounts
Why Co-brand: In detail
Issuer
1. Greater customer engagement: The existing customers will be less likely to
move to competitors as they know they can get better benefits and rewards if they
make their purchases with the card at the partner.
2. Increased average spend: The awareness of specific benefits of co-branded
cards is high thereby leading to increase spends on the card.
3. Improved Activation: It is noted that the cobranded cards have higher
activation as compared to regular bank cards and lower dormancy rates.
4. Customer Growth: The partner reach is an advantage that helps co-branded
cards win new customers in addition to conversion of existing customers in the
portfolio.
Partner
1. Brand Visibility: Increased visibility as cardholders will be exposed to it every
time they reach for their credit card. Not only does this ensure their loyalty, but it also
strengthens it.
2. Increase in sales: With specific co-brand card in wallet, the customer gives
preference to the partner over other brands in the same category.
3. Enhances customer stickiness: Cobranded card holders get benefit of
spending on any merchant but still earn partner loyalty points which creates more
stickiness and better experience.
Case Study: Co-branded credit card issued by leading private bank with a
popular airline
The card combines the benefits of airline and dining, entertainment. Targeted
at frequent flyer and customers who have high-end lifestyle.
Outcome for the Bank in 2 years:
Activated 16% of the never used customer,
10% of dormant customers and
28% of inactive customers
Here is a snapshot of major revenue and cost relevant to co-branded partnerships
particularly:
RevenueJoining Fees/ Annual feesIssuer shares a portion with partner
Cost Discount/voucherIn most of the cases, it is borne by Issuer
Costs Marketing expenseIs generally shared between parties
Reward RedemptionIs borne by Issuer, redemption is on higher side
Challenges
With benefits comes challenges of a partnership and co-branded partnership are no
different. There have been few co-branded cards which could not attract many takers
and on further study of such cards reveals the following challenges that an issuer
and its partner face:
Misfit of co-brand partnership
For many co-branded partnership it has been observed that customer perception
towards the co-branded product does not match with the brand value or image of the
bank, leading to lesser adoption and activation of the product.
Dependency on partner
A successful Co-brand card program demands significant resources and attention.
All stakeholders must therefore be comfortable making essential investments in
order to get value from a cobranded card else risk turning it into an overall negative
experience.
Brand reputation
Since most of the cobranded partnerships are long term contracts, there is a
reputational risk for either of the parties in case of loss of goodwill with the other
partner.
Key trends shaping Co-branded cards
We are likely to see issuers focus on providing unique value proposition & increase
customer base for co-branded cards. They will ensure stickiness to their co-branded
products by tweaking privileges/ reward program to suit changing customer demand.
Few key trends that are likely to emerge in near future are as follows:
Looking at untapped segments for partnership
Segments such as mass transit, smart cities, healthcare, hospitality and aggregators
in space of transportation are likely to be captured by issuers as these segments are
growing at a faster pace and are relatively untapped. These new segments will allow
issuers to acquire new customers.
Capturing a large and appropriate customer base
Diversifying partner portfolio might be looked by few issuers to see larger
acceptance of co-branded cards. Partnering with 2 to 3 partners in the same or
related segments could be explored by issuers that will help to attract larger
customer base.
Digital acquisition through partners
With merchants and customers both becoming more technology savvy, it is
imperative for issuers and their partners to have a interactive platform for digital
acquisition and also look at likelihoodofincentivizingcustomers to signup for the card
instantly. This is likely to reduce acquisition cost for the issuer.
Enterprise focused co-branded cards
Although there are few co-branded cards already launched for small and mid-sized
enterprises (SMEs) and their employees by certain issuers there is likely to be more
corporate cobranded cards that will focus on managing and reducing business
expenses. Issuers are likely to partner with the most suitable partner that could be in
the space of mobility, expense management solution.
Case Study: Card issued by a large bank with a Public transport operator
Who are looking for offers on gamut of lifestyle needs.
Outcome for the Bank in last 12 months:
Transactions have increased 4X times as compared to a normal Debit Card
1 0X increase in transaction amount
Greater customer engagement
