Co-branded cards don’t work for everyone

Amazon has a co-branded card with ICICI Bank which gave 5% as usual. But it offered 10% discount to HDFC Bank customers from 6-7 August and to SBI Cards customers from 8-11 August. Similarly, Flipkart’s co-branded card with Axis Bank gave 5%, but for the sale, it partnered with ICICI Bank and Citi for 10% discounts.

This is not the first time these e-commerce companies have done this. Does it then make more sense to have cards from one or two issuers who regularly tie up with e-commerce platforms instead of opting for co-branded cards?

“Not really. It depends on shoppers’ spending patterns and transactions they have on each e-commerce platform. They need to analyze and then decide what works best for them,” said Sahil Arora, director and group head (investments), Paisabazaar.com.

Both parties benefit

Co-branded cards work like loyalty programs of companies. The more you spend with a brand, the more benefits you get.

Credit card issuers prefer such tie-ups as customers are likely to use co-branded cards often due to loyalty. Banks can also cross-sell their other products to the customers that they acquire through the partnership. Brands benefit due to repeat business.

Many of them have a joining fee, which is waived off if the customer spends beyond a specified limit and the cards, typically, come with a welcome gift.

When should you opt for co-branded cards?

If you look at the sale event alone, it may appear that those who hold co-branded cards got lower discount. But co-branded cards help save more over the long term. So don’t judge the benefits based on sale events alone.

Co-branded cards work best if a person has loyalty towards a brand and spends money for its product or services. Assume that a consumer’s annual spend is, say, 4 lakh. Of this, 2 lakh is spent on Flipkart or Amazon alone, a co-branded card from the platform will help him save. “Ideally, if 50-60% of the total spends on a credit card is with one brand, the individual should opt for a co-branded card,” said Arora.

During sale events, the brand may have a tie-up with other banks or card issuers. But customers who hold co-branded cards get discounts all through the year, irrespective of the sales.

Take the example of online travel agents (OTA) Yatra and MakeMyTrip. Yatra has a co-branded card with SBI Cards and Payment Services Ltd and MakeMyTrip offers one in partnership with ICICI Bank.

At present, Yatra is running discounts from payments apps, wallets, banks and card issuers. However, these promotional tie-ups keep changing from time to time. Customers with the co-branded cards get flat discounts on air tickets as well as hotels. There are also higher reward points and a welcome gift voucher of 8,250.

MakeMyTrip and ICICI Bank have two co-branded cards with different sets of benefits. If you are not loyal to an airline or a hotel, but a frequent traveller, you can take cards such as these. However, if you are loyal to an airline, you can take its co-branded card. Vistara, for example, has co-branded cards with Axis Bank and SBI Cards. Similarly, IndiGo airline has two co-branded cards with HDFC Bank.

But consider the costs. “Most co-branded cards come with a sizable annual fee. You have to earn more in rewards than you pay for the privilege of having the card. If you spend enough, the rewards you earn often make the annual fees well worthwhile, not otherwise,” Pankaj Bansal, vice-president and head, key account management, Bankbazaar, a marketplace for financial products.

When should you steer clear of co-branded cards?

If you prefer shopping online or need to travel often but are not loyal to a brand, you can avoid co-branded cards. Instead, you can opt for a card that rewards you for higher spends in a category of your choice where you spend more.

If you shop online without being loyal to one company, you can go for a card like SimplyCLICK Advantage SBI Card. It offers higher reward points on online shopping and an Amazon voucher on joining. Similarly, if you don’t stick to one company for fuel, you can opt for Standard Chartered’s Super Value Titanium Credit Card that has higher rewards when a customer uses it at any petrol pump. Most issuers have cards that have rewards and benefits for spends in a specific category like travel, shopping, dining, movies and so on.

If you are a high-income earner, who can get the top-tier card of an issuer, you don’t need to be concerned about a brand or category. “Most top-tier cards have higher rewards on all categories and also provide tie-ups. They could offer free lounge access, higher dining discounts, higher rewards and complimentary membership to various other programs,” said Arora.

Managing cards

If you can control spending and don’t revolve the outstanding balance or pay only a part of the outstanding instead of making the full repayment, you could opt for up to two-three cards that cater to all your needs.

For example, if 70-80% of credit card spends are on two e-commerce platforms, you can take co-branded cards of both the companies and opt for another one that offers higher cashback rewards.

Similarly, if you spend more on two different categories, say, travel and fuel, without any loyalty to a brand, you can opt for two credit cards that offer benefits on certain categories.

The key is to analyze your spending and accordingly opt for credit cards that offer the best benefit. The benefits will accrue only if you repay diligently.

Before you go for co-branded cards, do consider the costs such as annual fee. Go for them only if the rewards can nullify the costs and for that, you will have to spend enough. Also, ensure you pay your dues on time.

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