Co-Branded Cards Take Flight

Led by the airline industry, co-branded cards are gaining popularity - and increasing card usage.

Consumers' preference for co-branded credit cards has grown significantly in the past couple of years, adding momentum to card usage, according to a recent report by Packaged Facts. The number of customers who prefer co-branded airline credit cards, for example, has increased by 73 percent between 2000 and 2003, the report states. The growth is contributing to banks' - and merchants' - bottom lines, relates David Morris, research analyst for Packaged Facts, a market research publisher based in New York.

Co-branded cards, which are affiliated with merchants such as airlines and retailers, use rewards programs and special offers - including rebates, discounts and gift certificates - to attract new customers, generate loyalty among existing customers and ultimately spur card usage. The future of co-branded cards across all industries seems bright, according to Morris.

"There is a lot of broad interest and [there are] new initiatives that cut across industries in co-branding," Morris says. The growth potential offered by co-branded cards is two-fold, he continues - on the banks' side and on the partners' side. For banks, there are profits to be made with the increased use of cards; for merchants, there are more marketing opportunities and visibility, which hopefully leads to increased sales, Morris explains.

Ready for Takeoff

Although the growth in co-branded cards reaches across industries, the airline industry, which has been a leader in co-branding efforts, has experienced the most growth, according to Morris, who asserts that airlines have become an important and profitable affiliate for banks, largely because of their co-branding efforts. "The airline industry is a very important profit center for banks, and banks will do all they can to maintain those programs," he says.

The airline industry has experienced hard times in the wake of Sept. 11, 2001 - including reports of profit loss and a spate of bankruptcies - that have affected the broader card industry to some degree. However, co-branded cards that offer mileage rewards, such as the Delta Sky Miles card, for example, have held up pretty well, explains Morris. Even though people may be flying less, co-branded cards aren't affected. "The irony is that if passenger miles go down, it doesn't reflect on the card," he says.

Additionally, other co-branding initiatives, such as Bank One's (now a part of JPMorgan Chase; New York) deal with Starbucks, have experienced growth more recently, Morris points out. The big brand names - card issuers and merchants such as Disney, for example - are recognizing the benefits of co-branding more and more, he says.

For their part, card issuers plan to offer lower fees per transaction on co-branded cards to promote card usage for smaller purchases, Morris relates. "There is a tremendous amount of gratitude in the space and, as we move toward electronic payments, there will be more," he says. "Even American Express, an issuer to mostly affluent customers, is targeting lower spend per transaction."