Co-Branded Credit Cards: The Allure and The Reality

Co-Branded Credit Cards: The Allure and The Reality

By Banking & Payments Group and Finnovia Group

Credit cards are one of the most profitable products within financial services, generating reliable streams of both interest and non-interest income for issuers. And the market is growing: large banks reported growth in credit card spend of 47%1 in the past two years, and growth in credit card outstandings of 28%2.

While the overall market is expanding, every issuer faces the perpetual challenge of gaining share. In an environment where (almost) every creditworthy consumer who wants a credit card, has a credit card3, how can banks increase the appeal of their credit cards? Increasingly, the answer is to partner with well-known brands which bring large customer lists and strong brand affinity.

For brands, contracting with a bank to offer a co-branded credit card can be very tempting. But, in talking with various organizations with co-branded cards, we find that many are disappointed and are seeking ways to improve their program’s performance. This article discusses a number of the most common pitfalls with co-branded credit card programs, followed by three key traits common among the most successful programs, and the steps that underperforming programs can employ to improve returns.

The allure of co-branded credit cards

Airlines were among the first major national brands to offer co-branded credit cards to their customers, with American Airlines partnering with Citi and Continental Airlines (now United) partnering with Marine Midland Bank (now part of HSBC). Beginning in the mid-1980’s, the co-branded business boomed and today almost every organization imaginable offers some form of payment card. The table below shows just a small sample of the thousands of brands that have a co-brand credit card partnership.

For a brand, the case for partnering with a bank to issue credit cards is clear, with compelling arguments in terms of both economics and marketing benefits.


  • Economics: with intense competition to attract and retain co-brand partners, issuers and payment networks are offering increasingly attractive economics to brands. These financial benefits include signing bonuses, card issuance incentives, and revenue sharing of interchange and interest income.


    For large, well-run programs, the economics can be significant. For example, payments from credit card partners generate approximately 15% of airlines’ revenue (and an even greater share of their net income). In 2022, the largest US credit card issuer received $28.1 BN in interchange income and paid out $22.2 BN to partners, either directly or indirectly (in the form of cardholder rewards).
  • Marketing: active users of a brand’s credit card tend to be better customers (to the brand) – they shop more frequently, have higher average ticket sizes, and are less likely to attrite. With every monthly statement – in fact, with every cardholder interaction – the brand has an opportunity to deliver tailored messages to their customers, offering an excellent channel to deepen engagement further.


    Costco highlights the leverage that a major retailer carries with the purchasing power of its customers. For many years, Costco had a co-brand partnership with American Express and the only credit cards that Costco accepted were American Express cards; these co-brand cards accounted for 8% of Amex’s $1 trillion in global spend (and approximately 70% of this spend was not at Costco). To win this account away from American Express, Citi and Visa partnered to offer unprecedented terms and slash the retailer’s cost of acceptance, provided even richer marketing incentives and made the case that they could help Costco to generate more cards and higher spend through this new alliance.

The disappointing reality

With attractive economics and numerous marketing benefits, it’s no wonder that seemingly every brand now offers a co-brand credit card. Yet, in our experience, for a brand, the reality often does not match the initial allure. The early euphoria of striking a deal and receiving a windfall signing bonus is all too often replaced by disappointment, frustration and finger pointing. 

While every program is different, and each card issuer has different strengths and weaknesses, we find four common sources of friction:

  • Fewer applicants make it through the bank’s underwriting process than anticipated
  • The program’s overall customer penetration falls short of projections
  • Overall engagement (i.e., number of active users and average spend levels) also falls short
  • The brand’s card issuing partner delivers a disappointing and dissatisfying customer experience

Examples of the most common friction points in co-brand credit card programs



Account approval

In most programs, the bank has sole decision rights in terms of who is and who is not approved for a credit card. And the primary determinant for this decision is an applicant’s credit score.

However, a customer’s value to the brand often has little correlation to their credit score. For example, in our work with a luxury car manufacturer, executives were surprised to learn that more than half of their customers with leases would not have qualified for a credit card with an issuer that used a particularly high score threshold.

One of the worst possible outcomes for a brand is to entice its high-value customers to apply for the brand’s credit card, only for these customers to be rejected. As it is often incumbent on the brand to invest in marketing to attract applicants, in the case of declines, the brand receives nothing in return for its efforts.


Most co-brand partnership agreements directly incentivize new cardholder acquisition, and as a result, many programs tend to over-estimate how many of their customers will elect to apply for one of their co-branded credit cards.

There are multiple potential root causes – wrong customer value proposition, ineffective marketing channel(s), poor marketing messages, insufficient marketing investment, sub-optimal sales processes, etc. We discuss different diagnostic steps below.


The greatest potential source of economic value is tied to card usage, and this is usually the greatest source of financial disappointment for co-brands.

All too often, a consumer will apply for a card to receive a discount at the point-of-sale and then never use the card again. Or apply for a new card to receive a generous sign-up bonus, fulfill the bonus requirements, redeem the points, and then put the card away.

The best programs deliver strong ongoing value to the customer, leveraging the co-brand partner’s unique attributes to provide rewards and benefits with high value to cardholders, but (relatively) low cost to the issuer.

Customer experience

A bank’s approach to customer service does not always align with the experience a brand seeks to deliver for its customers.

How telephone calls are handled (average speed to answer, agent quality, script customization, etc.) can materially influence customer perceptions. Similarly, when customers encounter specific issues, such as lost/stolen cards or transaction disputes, how the bank addresses these matters directly feeds into overall customer satisfaction.

If an issuer incorrectly declines a suspicious transaction, we find the likelihood that this customer will attrite within the next six months to be twice as high as the control group. With this one action, all of the brand’s efforts to build loyalty can be undone.

Brands tend to spend a lot of time and energy negotiating the economics of the contract with their bank partner, and yet spend far too little time on the real drivers of program performance. The good news is that many of these missteps can be avoided upfront or resolved post launch, by utilizing the key strategies we discuss below.

Winning Co-brand Credit Card Programs

High performing co-brand credit card programs share three important attributes: a compelling customer value proposition, an optimized product & marketing strategy, and an operating model with stakeholder alignment around key program objectives.

Best-in-class programs tend to have dedicated teams, or engage outside specialists to help manage the partnership and optimize the program over time; these programs further differentiate themselves from the pack by continually monitoring the market and their customers, to ensure their programs remain attractive and engaging over time.

1- Compelling Customer Value Proposition
The strongest co-brand programs have well-crafted customer value propositions with features and benefits that tap into consumers’ affinity for the brand. These programs provide compelling reasons to apply for the card, use the card regularly and keep the card year after year.



Acquisition/ Activation

A credit card issuer’s typical customer acquisition cost (CAC) ranges around $150-$200 per approved account. As such, no-fee co-branded cards usually provide sign-up bonuses in this range (generally paid in the form of the brand’s rewards currency), and cards with annual fees pay even richer incentives.

Co-brands differentiate themselves by appealing to brand loyalists with exclusive insider benefits, priority access and/or rewards program status upgrades. Often these perks cost the brand very little but have high perceived value to customers.

  • Delta SkyMiles Reserve Card: 50,000 miles (~$700 value) after spending $5,000 on the card within the first 6 months. Plus, Delta Sky Club Access, first free checked bag, priority boarding and higher priority for first class upgrades

  • REI Card: $100 REI gift card after first purchase outside of REI within 60 days of account opening


Leading programs offer incentives for cardholders to use the card regularly, both “in-store” and “out-of-store.” Additional benefits for achieving minimum spend thresholds can help drive top-of-wallet status.

  • JetBlue Plus Card: 6x TrueBlue points on JetBlue spending, 2x on restaurants, 1x on everything else. Plus, every $1,000 of spend earns a “tile” toward Mosaic status
  • Marriott Bonvoy Bevy card: Premium free night award after spending $15,000 on the card each year


Shrewd programs soften the sting of annual fees with anniversary bonuses. While these benefits have a hard cost, when properly designed, an anniversary bonus can be materially less expensive than the cost of acquiring new customers. Status upgrades or exclusive access for cardholders also offer compelling reasons to keep the card year after year.

  • Southwest Rapid Rewards Plus Card ($199 fee): Anniversary bonus of 9,000 points ($135 value)
  • Nordstrom Card: automatic “influencer” status, which provides annual credit of up to $200 for in-store tailoring; plus, early access to anniversary sale and other in-store benefits

2- Optimized Product & Marketing Strategy

In an effort to get to market quickly, some co-brand programs rush their product development process by skimping on customer research. They may simply benchmark other cards in the marketplace and develop an undifferentiated “me-too” offering, or attempt to ‘beat the competition’ with a marginally richer value proposition constructed on a conference room white board without the benefit of customer insights. Invariably, this approach results in suboptimal programs that either fail to generate much demand or that have overly rich value propositions which deliver inadequate economic returns.

The chart on the right illustrates a conundrum facing credit card product managers. The x-axis represents the value to cardholders of the program’s rewards, benefits and bonuses; and the y-axis represents the program’s profitability, with the dashed horizontal line representing the bank’s profitability threshold (typically the Return on Assets achieved on the bank’s other card products).

Program Profiability vs. Investment in Customer Value Proposition

If a co-brand program does not offer a sufficiently strong customer value proposition, it will generate too little consumer response (in the form of low uptake and/or low card usage), resulting in a failure to clear the bank’s profitability hurdle rate.

Conversely, some programs fall into the trap of trying to outdo competitive offerings, and in the process, offer overly rich customer value propositions. Although these products may generate strong demand and usage, if the rewards cost exceeds the effective yield on this spend, the program will likewise be underwater.

In contrast, best-in-class programs engage in a robust product development process informed by qualitative and quantitative customer research. This approach helps to identify customer preferences and demand for different combinations of rewards and benefits. Armed with these insights, programs can craft compelling value propositions.

With product concepts developed and demand estimated, a program P&L can be forecasted by incorporating traditional credit card performance metrics (activation rates, average spend, propensity to revolve, rates of attrition) and the dynamics of the brand’s customers and sales channels (size of customer list, average cost of acquisition in the brand’s channels and credit worthiness of the brand’s customers). Combining customer research with a forecast of different P&L scenarios helps to calibrate the right product construct within the profitable range. This approach identifies a compelling – and profitable – value proposition.

Next, programs generally turn their attention to marketing. Typical co-brand programs often have hard wired marketing plans: they run 4-6 campaigns per year and utilize defined messages and placement strategies based on past experience with other programs.

By contrast, high-performing co-brand credit card programs adopt a more agile approach of ‘following the data’ as they continually adjust where and how to invest in marketing. They build an initial marketing plan as a starting point and adopt a test-and-learn discipline to optimize different elements of this plan over time.

Pioneered by Capital One, test-and-learn involves the systematic use of feedback mechanisms to optimize across a range of potential actions – including promotions, creative design, messages, channels, targeting and timing. Further, some banks combine A/B testing techniques with machine learning to automate the optimization of digital marketing efforts.

With this marketing feedback loop in place, successful co-brand programs continually refresh and optimize their go-to-market approach. Some programs conclude that a 360-degree review and full relaunch is required to remain competitive. This may involve overhauling the product line-up, financial models, and marketing strategy; in some cases, it also entails revisiting the effectiveness of their bank partner. Simply stated, the best programs don’t merely “set it and forget it” – they regularly review, refine and refresh their programs. Recognizing the gap in credit card expertise between brands and credit card issuers, organizations are often best served by engaging outside advisers to help ensure that their program is the most compelling and competitive.

3- Operating Model with Aligned Objectives

Successful co-brand partnerships have clearly defined operating models, specifying how stakeholders will interact with the program’s customers at each link in the credit card value chain. Step-by-step, the bank and brand discuss and align on the target customer experience (as shown in the graphic below).

Ideally, a brand will have raised many of these questions during the partner selection process and codified these operating model decisions during the co-brand Agreement negotiation. In fact, we find the root cause of a brand’s dissatisfaction with its bank partner often boils down to a lack of alignment over when, where and how certain decisions that affect cardholders are made.

The best co-brand programs operate in the spirit of partnership with shared financial incentives. In this way, partners can develop specific remedies to points of dissatisfaction, such as disappointing applicant approval rates or a customer experience inconsistent with the brand. For example:

  • Account approval: Most brands have rich sets of customer data; bank partners should be willing to adapt their underwriting models to incorporate any such data that enhances risk scoring. Also, brands may be able to encourage their bank partner to approve deeper in the credit score range by offering to share in the financial risk of defaults or by engaging third-party underwriters (so-called “second look” providers). Finally, with prescreening that combines both bank and brand data, programs can be selective as to whom they present invitations to apply, thereby further reducing the frequency of declines.
  • Customer experience: Where customer experience is critical, a brand may be able to negotiate with the bank to provide customized credit card servicing for customers. This may include dedicated call center queues, differential average wait-time SLAs or even different fraud detection criteria to lower false positives. An issuer may be willing to accommodate such requests to win a particularly competitive RFP, or if the brand will share the incremental cost of customized servicing.

A new approach

For many brands, launching a co-brand credit card program has delivered strong economics, new marketing channels and deeper customer engagement.  For their bank partners, co-brands have lowered acquisition costs and delivered highly engaged card customers.  But in other cases, program performance has fallen short of expectations; the reality doesn’t match the initial allure.

In today’s competitive landscape there are many potential co-brand partners for banks and brands alike.  As such, the temptation to cut ties and find another issuer partner in the face of an underperforming program is understandable.  Or worse, to deprioritize such programs, starving them of resources and attention until the end of the contract term.

A better approach entails pinpointing the source(s) of underperformance – whether from an undifferentiated customer value proposition, sub-optimized marketing, or an operating model misaligned with stakeholder objectives – and resetting accordingly.  By doing so, every co-brand program has the potential to deliver against its promise.

1 B&PG analysis of issuer reporting, full year 2020 vs. full year 2022 (the pandemic materially lowered credit card spend in 2020)

2 Federal Reserve Quarterly Report on Household Debt and Credit, Q1 2021 to Q1 2023

3 Americans have 3.0 credit cards on average, according to Experian State of Credit 2021

Tony Hayes is the Founder and Managing Partner of Banking & Payments Group. He can be reached at

Peter Fishman is the President of Finnovia Group, LLC. Finnovia Group advises clients on product innovation, infrastructure strategy and partnership development. He can be reached at