Managing Money: How to Optimally Utilise Co-Branded Cards

The digital payments industry is continuously innovating to provide seamless transaction solutions and upgraded security services, along with better rewards and convenient redemption options to consumers. 

Currently, payment service providers' benefits and rewards are the differentiating factors as adequate security is a given for consumers. Although the market may be inundated with offers and options from payment cards, consumers seek products that offer higher rewards tailored to their specific lifestyle with every transaction.

While there is no single best option – it is about what works for you. What type of card provides holistic benefits and value for your money? Should you opt for a regular bank rewards card or does a co-brand card fit the bill? Which of the two allows more appropriate redemption options and value for you? You also need to consider the cost of acquiring a card? In case of a fee card the benefits and how it fits your lifestyle and needs?

How to evaluate a reward programme based on a payment card?

Marketers these days are incredibly innovative about the way they position their reward programmes. You are likely to hear a sales pitch stating that you will earn X points, worth Y rupees, for every transaction you make. However, neither of these approaches offer a clear sense of the reward's extent or how quickly you can get to your dream reward and fulfil aspirations, its attainability. Evolved consumers must take into consideration both these extremely critical parameters, as they evaluate products and services.

It is also imperative to consider and compare the following parameters before investing in getting a sense of actual returns on your spends:

1. Value per point derived as per your dream or target reward

2. Number of points earned on every rupee spent

3. Total points required to get to your target reward

4. Amount of spends you need to achieve those aspirations

5. Number of months it will take you to make those spends basis your current spending patterns 

These will indicate the rewards that you may earn every X months on Y spend. Choosing between cards get easier.

Cards that offer direct cash-back are more transparent about their value proposition. However, these usually do not provide dream or target rewards worth more than the cash-backs and discounts provided on an ongoing basis. So choose wisely. 

Beyond this, you should also look at historical evidence of devaluation of reward points. Adequate research will tell you if the bank or service provider has reduced the reward's value per point in the past and cannot be trusted with the overall proposition. 

One should also consider benefits beyond reward programs like exclusive access & privileges, which come with the product, recognition and status benefits, and priority services. If these matters more for a customer than the rewards, the evaluation parameters would, of course, shift.

Why co-brand cards work better?

Two is always better than one. When two brands create a co-brand card, it almost always is a product with richer rewards, benefits and privileges. Co-brand cards tend to be better as both brands are keen on rewarding your loyalty as well as your intent in choosing them over others. 

However, these cards come with a caveat – rewards or benefits are restricted to the brands involved. If your lifestyle is beyond these, look for products that offer a co-brand card's benefits and privileges. They, however, should not restrict your choice or lifestyle in any way. A coalition or a multi-party co-brand card could be a great pick. A co-brand card with a program that offers a great ecosystem of partners and tons of opportunities to accelerate your rewards could fit you too. 

Evaluation parameters for co-brand cards

The key to being a smart shopper is choosing a co-brand credit card wisely. There is no point in spreading yourself too thin by signing up for multiple co-brand cards and using each one sporadically. You will not be able to derive benefits from shopping at scale. Neither will you be able to secure good returns on investment in case each card charges an annual fee. 

Ideally, pick a card that fits in with your regular spending pattern and usage. Depending on your purchases and spending habits, you can opt for a speciality card – with a specific retailer or brand. 

For example, if you buy groceries and vegetables from a supermarket, check if they offer a co-brand card. However, if you prefer to shop online, it makes sense to check for co-brand cards that offer better deals on e-commerce sites. If your purchases are category-specific, you will be better served by a co-branded card from a company or retail chain operating in these categories. These could be apparel, sports goods, and electronics.

If you regularly go on road trips, a co-branded card backed by a fuel brand makes more sense. Refuelling at its outlets can get you a waiver on fuel surcharge and a host of other benefits and savings. More recently, food delivery apps have started offering co-branded cards, which come with offers and services when ordering or even while dining out. 

The travel and tourism industry offers some of the best variety and options in co-brand credit cards. Purchasing air tickets or booking hotels with cards co-branded with online travel brands can be more rewarding than going with a regular credit card. There are other benefits too. Many travel co-branded cards come with exclusive privileges such as access to premium airport lounges and air miles. It is a good idea to keep a co-branded travel card handy, as it could save you a substantial amount even if you transact only a few times in a year. 

You can also opt for a card associated with a brand agnostic platform that gives you a wide range of benefits across multiple sectors, including travel, shop and dining. 

Is it the right approach for you?

If your engagement with retail or travel brands tends to be high, it will bode you well to take up a co-brand card that generously rewards you for being a high spender.

Having said that, you should also consider costs incurred for holding a co-brand credit card. Some of these cards levy annual fees that range from Rs 500 to Rs 5,000. Typically, cards with higher charges tend to provide more benefits on higher spends for more extended periods. Some co-brand cards also offer reversal of annual fees for spends beyond a specified threshold amount in a year.

You must also ascertain whether your future spending can generate enough benefits to offset the fees you pay on retaining a co-brand card. 

The author is Senior Vice President at InterMiles

DISCLAIMER: Views expressed are the author's own. Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.