Co-Branded Credit Card: Definition, How It Works, Examples

What Is a Co-Branded Credit Card?

A co-branded credit card is a card that a retailer or other business offers in partnership with a credit card issuer or network. Typically 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 cards from that network are accepted.

How Co-Branded Cards Work

Co-branded cards work like any normal credit card. They can be used for any purchase wherever cards in that network (such as Mastercard, Visa, American Express, or Discover) are accepted.

Co-branded card relationships can be structured in a variety of ways. But basically, in order to issue a co-branded credit card, a merchant (such as a department store, gas station, or airline) or another organization (like a university or nonprofit) must partner with a financial institution, which provides the actual credit.

Often that financial institution will be the retailer or other organization's acquiring bank—that is, the bank where they maintain a merchant account, which already deals with credit or debit card payments on their behalf.

Even when they offer their own proprietary credit cards, few retailers handle the financial mechanics of transactions but instead 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.

While the card will be issued by a particular bank, it will usually feature the retailer or other company's logo most prominently on its face, along with that of the processing network. American Express and Discover serve as both issuing banks and networks, while Mastercard and Visa are simply networks serving other banks.

Examples of Co-Branded Cards

The earliest examples of co-branded cards appeared in 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' AAdvantage Aviator Red World Elite Mastercard, the Delta SkyMiles Blue Amex card, and United Airlines’ United Explorer card from Visa.

Hotels, cruise lines, and other travel providers soon followed suit, as did other organizations, often classified as affinity groups. They range from sports organizations like the National Football League and NASCAR to charitable nonprofits like the Nature Conservancy and many colleges and universities. In addition to offering perks, affinity cards aim to give users a sense of loyalty and belonging, while making them more inclined to spend money with or donate to the sponsoring organization.

Retailer Co-Branded Cards

But the biggest segment of the co-branded card market involves retailers. Some even have several co-branded relationships. Amazon (AMZN), for example, offers both Amazon Visa and Amazon Business American Express cards, as well as its own Amazon store card. It also offers a secured credit card.

Like Amazon, many other large specialty and department stores (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 card as well as a SaksFirst World Elite Mastercard.

The co-branded cards usually provide all the perks 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 at a particular store or chain but in many different places. The Saks Mastercard is good anywhere a Mastercard is accepted, for example.

Why would a retailer offer both? To attract more cardholders and paying customers. 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, they see the store's logo.

In addition, store-specific cards, also known as private label cards, are often easier to qualify for than regular credit cards.

The Bottom Line

Co-branded cards help retailers and other businesses draw customers and often provide customers with extra perks. Like any other credit card, they can be convenient if used properly but hazardous if they encourage overspending.