Co-branded credit cards: Is this worth opting for them?

If you are looking for a credit card, be mindful that there is one category of cards which you may consider, especially if you are a shopaholic. We are referring to co-branded credit cards. What, one would wonder, are co-branded credit cards?

These are specialised credit cards that are issued through a partnership between a bank and a brand which could be a cinema chain, airline, clothing brand or online marketplace. These credit cards tend to offer exclusive benefits, rewards, and perks related to the partner.

For instance Kotak Mahindra Bank offers PVR INOX Kotak Credit Card which offers 5 percent instant discount on movie tickets and one ticket for every ₹10,000 spent on the card. Kotak Mahindra also offers Myntra Kotak Credit Card which offers an instant discount of 7.5 percent on Myntra.

Similarly, SBI Card offers Ola Money SBI Card which allows card users to earn 7 percent back on all Ola rides. Likewise, SBI Card also offers Tata Card which allows 5 percent value back on spends on Tata outlets, and 1.5 percent value back on spends at Croma.

How do they work?

Essentially, a bank partners with a brand to create a card tailored to the brand's customers. The cardholders then start earning points, miles, or cashback when they buy from the partner brand. These rewards can typically be redeemed for discounts, free products, or services from the brand.

The card incentivises spending with the partner brand, thus helping strengthen customer loyalty.

Key features of co-branded credit cards

A. Enhanced rewards: The co-branded cards offer higher reward rates for purchases made with the partner brand (such as 5x points on flights booked with an airline). They also offer standard rewards for purchases made elsewhere.

B. Exclusive benefit: These cards also give priority services such as priority boarding for airlines, room upgrades for hotels.

C. The cards also offer discounts or rebates for purchases made with the brand.

D. There could be some special access such as an early launch of a product.

E. Redemption: Rewards are typically redeemable only with the partner brand such as airline miles or store credit. There are some cards which allow redemption for cash back also.

Other considerations

Limited flexibility: The rewards are typically tied to the partner brand, thus limiting redemption options. This means you stand to lose rewards if your spending pattern changes or if the brand no longer fits your lifestyle.

Annual fee: Several co-branded cards charge an annual fee, which some may find to be over the top when you don’t use the brand frequently.

Higher interest: These cards may charge a higher rate of interest as compared to other general purpose cards.