Co-branded cards useful, but get one only if you use e-commerce sites a lot

Ecommerce companies are increasingly offering co-branded credit cards that offer their users discounts and cashback on their platforms. Flipkart is the the latest one to join this trend. The e-commerce platform has partnered with Axis Bank. Before this, Paytm had launched Paytm First Card with Citi, Ola joined hands with SBI Credit Card, and Amazon India has been offering a co-branded credit card with ICICI Bank.

So, how do these cards work? Co-branded cards are like loyalty programmes. The more cardholders spend with a company, the more benefits they get. "Through such tie-ups, banks get to increase their credit card base through cashback offers and leverage digital footprint left behind by newly-acquired customers to cross-sell other products. As far as tech companies are concerned, cashback offered to customers through such tie-ups increases their brand loyalty," says Sahil Arora,  director and group business head- investments, Paisabazaar.com.

In the recent partnerships - of banks and tech platforms - the cardholder gets a cashback on every spend. Ola Money SBI Credit Card, for example, offers 7 per cent cashback on cab spends, 5 per cent on flight booking, 20 per cent on domestic hotels, and so on. Similarly, in Paytm First card, Amazon Pay ICICI Bank card and Flipkart Axis Bankcard, customers get between 1 per cent and 5 per cent unlimited cash back on every spend on the respective platform.

Most of these co-branded cards have a joining and annual fee, which is waived off if a customer's spends cross the specified threshold. Some also offer joining benefits through vouchers, one-time discount, or free subscriptions to various services. The partnering banks also provide extra benefits such as movie tickets and discounts on restaurants. "Co-branded cards work for individuals who are loyal to a brand. But a customer should not opt for one of these cards and then change his spending behaviour," says Navin Chandani, chief business officer, BankBazaar.

A customer needs to first evaluate whether he has been spending mostly on one e-commerce platform or with one taxi-hailing company. Only if the past spending pattern indicates loyalty to one platform should the user opt for these cards. But if there's no loyalty to one brand or platform, then the individual should give such cards a pass. "Look at whether the spends are on a brand or a category. Accordingly, sign up for a co-branded card and segregate the spending," says Chandani. If you are not loyal to any brand, but spend significantly on shopping online, then get a card that rewards online shopping. There are a few cards that offer higher points to the customer for spending online, irrespective of the platform.

An individual needs to segregate his monthly spending and check the categories and brands where he spends the most. Out of the total expenditure, if 50-60 per cent is with one brand or one category, accordingly opt for credit cards that help to reward the behaviour. If spends are on airline tickets and e-commerce shopping, for example, enrol for two cards that offer higher air miles and more points for online spending. If you are a big spender on both Flipkart and Amazon, it does make sense to enrol for co-branded cards on both the platforms, according to experts.

Experts also point out that e-commerce players are opting for co-branded cards due to recent government regulations. "Foreign-owned market places have been bogged down by recent government guidelines, which deter them from giving deep discounts to customers. Tie-ups can help such market places skirt regulations as banks provide the cashback and not the e-commerce platforms," says Arora.

Get a card based on your spending behaviour

• Don't enrol for a card and then try to change your spending pattern
• Evaluate three-four months' expenditure
• Co-branded cards work best if there’s loyalty to a brand
• Many users spend based on discounts instead of sticking with a band 
• For such individuals, a card that rewards for spending on a category works better