If I were to look inside your wallet right now, what would I find? For most of it, it would probably be your driver’s license, transit pass and a co-branded credit card or two. Co-branded credit cards are a growing trend in Canada and it’s not hard to see why. You’re rewarding for spending money at your favourite retailer. What’s not to love? Not only are they a hit with cardholders, companies love them, too. Let’s take a look at three reasons why companies love co-branded credit cards so much and what you should be aware of as a consumer.
1. Sharing Credit Card Interchange Fees
In industries like the grocery business where razor thin margins are just a fact of life, co-branded credit cards provide supermarkets with a new stream of income. Every time you swipe your co-branded credit card at your favourite retailer, the retailer receives a share of the profits. This also helps improve the retailer’s bottom line. Normally, the entire interchange fee would go to the lender and Mastercard or Visa, but with co-branded credit cards, the revenue sharing means the retailer gets to keep a share of the interchange fee.
2. Building Brand Loyalty
With so much competition out there, retailers are doing everything in their powers to keep a leg up on competitors. The great thing about co-branded credit cards is that retailers are able to build brand loyalty without spending a boatload of money on traditional advertising. This in turn encourages cardholders to spend more at those retailers. This is backed up by a 2016 report by the Nielsen Company that found that two-thirds of consumers shopped more often and spent more at retailers with loyalty reward programs.
This makes perfect sense. Think about it. If you would earn rewards points by shopping at supermarket A, but you wouldn’t earn any points by shopping at supermarket B and both are about the same distance from home, which would you go to? I’m willing to bet supermarket A (you might even be willing to travel there if it was further away, which speaks volumes to how important brand loyalty is.)
3. Gaining Better Consumer Data
Companies are willing to pay millions for consumer data, but what if they didn’t have to? What if they could get that data for free? That’s just what co-branded credit cards allows them to do. Retailers are able to get a glimpse into your spending habits and see exactly where you’re spending your hard earned dollars. Based on this, they can use this to understand your spending habits and better target ads towards you.
A perfect example of this is the PC Plus loyalty reward program from Loblaw. Based on your shopping habits, Loblaw can target offers specifically for you. Since the offers are for products you’d normally purchase, this makes you more likely to take advantage.
The Bottom Line
So, there you have it, the top reasons why companies love co-branded credit cards so much. Being aware of this can make you smarter as a consumer. There’s nothing wrong with taking advantage of an offer on a product or service you normally buy, but if you end up buying something just to take advantage of the rewards, that’s when you can find yourself on a slippery slope. Be sure to read the fine print on any credit card offer. Co-branded credit cards also tend to have the highest interest rates on the market (upward of 29 percent in extreme cases). Our best advice is to take advantage of the rewards and avoid carrying a balance at all cost.
