What Is a Co-Branded Card?

A co-branded card is a credit card that a retailer of consumer goods or services issues in partnership with a particular credit card issuer or network. Often bearing the logos of both the credit card company and the retailer, co-branded cards earn merchandise discounts, points, or other rewards when used with the sponsoring merchant, but they can also be used anywhere the cards from that network are accepted.

Co-branded card relationships can be an important part of a retailer’s business, attracting customers who wouldn't be interested in a regular store credit card. They are also used by nonprofit institutions and other sorts of organizations or affinity groups.

A co-branded credit card is sponsored by two parties. Typically one is a retailer — such as a department store, gas retailer or airline. The other is a bank or card network such as Visa, MasterCard, Discover or American Express. With co-branded credit cards, cardholders may get merchandise discounts or rewards points when they buy from the sponsoring merchant, but can also use the cards any other retailer that takes cards from the bank or card network. Also spelled cobranded.

Key Takeaways

  • A co-branded credit card is sponsored by two parties—typically, a retailer and a card issuer or card network—and usually bears the logo of both.
  • Co-branded cards can be used anywhere the credit card (like a Visa or MasterCard) is accepted.
  • Airlines were the earliest adopters of co-branded cards.
  • Many retail stores offer co-branded cards in addition to their own proprietary cards.

The Basics of a Co-Branded Card

Co-branded cards work like any normal credit card and can be used anywhere for any purchase. But the cards feature images and often provide special merchandise discounts or cashback opportunities for a specific type of purchase or experience.

Co-branded card relationships can be structured in a variety of ways. But basically, in order to issue a co-branded credit card, a retailer (a department store, gas-station operator, or airline) or an organization (a sports operation or a university) must partner with a financial institution. Often that institution is the retailer’s acquiring bank—that is, the financial institution that already processes credit or debit card payments on its behalf. This can simplify the co-branded card transaction process and the relationship will rely on the acquiring bank’s network processor. (Even when they offer their own proprietary credit cards, few retailers handle the financial mechanics of transactions but turn them over to third parties. That's why, when paying the bill on your store charge account, you might make out the check to ABC store/XYZ Bank).

In other cases, the retailer may choose to work with a third-party credit card provider. American Express and Discover are two companies that provide unique co-branded card relationships, since they have the capacity to serve as both the credit-issuing financial institution and the network processor. Other co-branded card sponsors include the popular issuers Visa and Mastercard.

In all transactions, the merchant acquiring bank works with the retailer to process any electronic payment card purchases. If the co-branded card relationship is through the acquiring bank, the transaction process can be simplified, specifically in the case of branded purchases where the bank and retailer are the only two entities involved. If the merchant works with a third party to issue credit cards, both the third-party card issuer and co-branded processor will be involved. The card-issuing institution also manages the points accumulated by the customer with the merchant.

While both technically follow co-branding procedures, it is this latter type—the partnership with a third-party card issuer—that is generally referred to as a co-branded card. This is the arrangement that prominently features both the retailer's name and the card issuer's/network processors name on the card.

Examples of Co-Branded Cards

The earliest example of co-branded cards dates from the 1980s, when airlines began teaming up with banks and card issuers to offer mileage reward credit cards. Of course, these types of plastic remain highly popular today: examples include American Airlines' MasterCard, offered through Barclay Bank; United Airlines' Visa, via Chase Bank; and the Delta Skymiles American Express card. Hotels soon followed suit. In fact, airline and hotel segments comprise 28% of co-branded credit card programs, according to Co-Branded and Affinity Cards in the U.S., 6th Edition, a report issued by market research firm Packaged Facts.

Another example consists of cards issued on behalf of an organization or institution, known in the trade as affinity group cards. The affinity group ranges from sports organizations like Nascar to universities and, in addition to offering perks, aim to give users a sense of loyalty and belonging. For example, the Harvard Alumni MasterCard offers a choice of different card faces showing scenes of the Harvard University campus.

56%

Percentage of adult cardholders who own co-branded cards (source: Packaged Facts National Online Consumer Survey, May 2019).

Store Co-Branded Cards

But the biggest segment of the co-branded card market involves stores, either online or digital. Some retailers even have several co-branded relationships. Amazon (AMZN), for example, has two Amazon Rewards Visa Signature cards and, for businesses, two American Express cards. These are in addition to its own Amazon.com store card.

In fact, many large specialty and department store retailers (who offered the very first charge cards, back in the early 1900s), offer both their own cards and co-branded cards. Case in point: Saks Fifth Avenue, which has its proprietary SaksFirst store credit card, but also offers a SaksFirst World Elite MasterCard, in both regular and platinum versions.

The co-branded cards usually offer all the perks and benefits that the store-specific cards do: discounts, shopping points, free delivery, advance notice of sales, etc. The main difference is that the co-branded card is an open loop credit card, meaning it can be used not just in the store but at a variety of locations. The Saks MasterCard is good anywhere a MasterCard is accepted, for example.

Why would a retailer offer both? To attract more cardholders: Many consumers might find a card they can use anywhere more practical, especially if they are cautious about having too many credit cards in their wallets. The co-branded cards might also offer better terms (store cards carry notoriously high interest rates). At the same time, the card acts as advertising for the store, since every time the customer uses it, he sees the store's logo.