Do you really need a co-branded credit card?

You’re sifting through your credit card bills for the past few months and notice that you spend a lot on a particular category, say airline tickets. You just saw a bank credit card advertisement announcing a tie-up with an airline. Tempted to sign up for this co-branded card?

Before you do, see if you really need the card. By its very nature, a co-branded card needs you to be devoted to that particular brand. Even with this devotion, unless your spends on the brand are significant, there’s no real benefit in taking the card. This means the scope of spending should be wide and the frequency of spending should be high.

What they are

First off, a co-branded credit card is born of an association between the issuer of the card and an institution. The institution can be a retail outlet, an airline, a hotel or restaurant and so on. Using the card at these institutions will get you specific offers, rewards and benefits besides regular card benefits.

For instance, using a retail shopping outlet card, say, Westside will help you earn more points on Westside spends than in others such as Shoppers Stop or Lifestyle. Co-branded cards also charge an annual fee, ranging from Rs 200 to as much as Rs 3,000.

Scope of spending

Clearly, a co-branded card encourages spending at particular places only. Gauge the amount of spending you will be doing in that brand in order to understand how you will benefit. Here’s illustrating with an example.

SBI’s co-branded card with SpiceJet offers 5 per cent cash back on spending at the airline. But you must use only SpiceJet’s Web site, call centre or airport ticketing counters for booking. Outside spending on SpiceJet, the reward points system for this card doesn’t have much going for it, requiring huge spends for a minimum of benefits from reward points.

Then take HSBC’s co-branded card with MakeMyTrip, or SBI’s Yatra.com partnership. The cards give you, upon joining, Rs 5,500 and Rs 8,250 worth of discounts on tickets and hotels, besides extra reward points on transactions made on the Web site. You get discounts on crossing a minimum threshold of spending on the sites. The spending-reward ratio is slightly better.

With a SpiceJet-only card, you lose out on benefits if you take alternative airlines. Given that MakeMyTrip offers a lot more airline options, besides hotel, bus and rail bookings, the drumming up points and deriving more benefits is quicker. There are a number of co-branded airline cards, both national and international. SBI has a co-branded card with the Railways which offers cash-backs and other benefits on railway ticket bookings.

Also keep in mind that with airline co-branded cards especially, it may be more beneficial to take a regular credit card that promotes travelling. HDFC Bank’s Platinum Edge credit card, for instance, allows points conversion into air miles on Jet Airways, Kingfisher Airlines and Air India.

Frequency of spending

Now, while you may be a SpiceJet loyalist, if the number of times you use it is minimal, there is no real benefit in taking a co-branded card. You won’t make enough purchases to make it worthwhile.

Take a fuel card. The amounts you spend are hardly as large as tickets or hotel rentals. But the sheer number of times you can swipe at fuel stations is far more than airlines, which will help you rack up amounts.

Even if the tie-up is with a specific company, such as HPCL or Indian Oil, with the number of stations across the country, the hurdles to staying loyal are absent.

Take the Citibank IndianOil credit card. You earn 4 points on spends at Indian Oil stations. These points can be converted into free fuel. So, on a monthly petrol bill of Rs 6,000, you get about 2 litres of petrol. Besides, the fuel surcharge on cards is waived. Quite a sweet deal, isn’t it?

When to go for them

What you need to do is assess your spending pattern and reasons for spending. There are not too many co-branded cards on offer, so analysing the benefits of cards should not be too difficult.

In a nutshell, if the scope for spending is broad, and you make frequent purchases there, then go ahead and consider signing up for a co-branded card. If spending is just once-in-a-while, no matter the amount, a co-branded card is on par with a regular card.

acharya@thehindu.co.in

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