The Rise of Co-Branded Credit Cards

Elroy: Welcome to the India Fintech Diaries, the only podcast focused exclusively on the Indian fintech market. I’m Elroy.

Hemant: And I’m Hemant. In each episode, we dive into the latest trends, ideas, innovations, business models, and personalities shaping India’s fintech landscape. We’re excited to explore the evolving fintech scene with amazing guests who are driving this transformation.

Elroy: Today, we’re discussing the fascinating world of co-branded credit cards. To help us dive deep, we have a special guest, Ramanathan RV, Co-founder of Hyperface. Welcome to the show, Ram.

Ram: Thank you, Elroy and Hemant. It’s a pleasure to join you and discuss how co-branded credit cards are reshaping India’s financial landscape.

Hemant: Ram, you’ve had a long association with the fintech world. Can you tell us a bit about your background and the journey that led to the founding of Hyperface?

Ram: Absolutely. My background is in engineering. I started my career with Amazon back in 2006, during the first wave of startups in India. In 2008, I joined BankBazaar.com, a Chennai-based startup, when the word “fintech” wasn’t even in common use yet. We were trying to solve banking problems, especially during the global recession.

From there, I moved to JustPay, which marked my transition from being a technologist to an entrepreneur. At JustPay, we built solutions for UPI, including launching BHIM for NPCI. In 2019, I left JustPay, and in 2021, I started Hyperface to focus on credit cards—a product we saw growing in relevance and complexity. Every time we see a problem, it feels like an opportunity. That’s how Hyperface came to be.

Hemant: That’s an incredible journey, Ram. Let’s talk about co-branded credit cards specifically. Can you walk us through their history in India and the opportunities they present?

Ram: Co-branded cards have been around in India since 1997, starting with partnerships like oil companies and banks. Over the years, they’ve evolved into a multidimensional product that combines payments, credit, rewards, and loyalty. Today, co-brands represent about 30–35% of new credit card issuances in India, with spending growing at a 14% CAGR.

What makes co-brands fascinating is their ability to integrate value for both consumers and businesses. For example, a customer might only need one debit card but could have multiple co-branded credit cards, each offering unique benefits tailored to their specific needs.

Elroy: That’s really interesting. So, co-branded credit cards combine multiple elements—payments, credit, rewards, and loyalty—all into a single product. But what makes them so appealing to customers and businesses alike?

Ram: For customers, it’s the tangible benefits—cashback, priority access, and tailored rewards. These cards create a compelling story for the customer. It’s not just a payment method; it’s a tool that provides added value.

For businesses, co-branded cards are a powerful way to build customer loyalty without setting up their own infrastructure for rewards programs. The management of loyalty is handled by the issuing bank, which reduces the operational burden on brands.

Hemant: That’s a great point. You also mentioned that co-branded cards are driving digitization. Could you elaborate on how these products encourage customers to move away from cash?

Ram: Sure. Traditional cash transactions are anonymous, and there’s no way to track or reward customer behavior. With co-branded cards, businesses can use payment data to identify repeat customers and offer them perks like cashback or loyalty points. This makes digital payments far more attractive than cash, which has no inherent rewards system.

Elroy: So, co-branded cards essentially make it easier for businesses to reward and engage with their customers, right?

Ram: Exactly. They’re a crucial mechanism for delivering rewards efficiently. Without them, businesses would have to rely on standalone loyalty programs, which are often cumbersome and less effective. Co-branded cards simplify this by consolidating rewards, payments, and credit into a single, easy-to-use product.

Hemant: Ram, you mentioned that co-branded credit cards now represent about 30–35% of new issuances in India. Can you shed some light on how this compares to more mature markets like the US?

Ram: In the US, nearly 45% of issued credit cards are co-branded, which is almost one in two cards. This shows how deeply ingrained co-brands are in that market. India is on a similar path, with one in three credit cards being co-branded today.

The difference is that the US has had years to evolve its co-brand ecosystem, while India is just beginning to tap into its full potential. As more businesses adopt co-branded models, we’re likely to see significant growth, similar to what happened in the US.

Elroy: That’s fascinating. What do you think has driven the growing affinity for co-branded cards among Indian consumers?

Ram: It comes down to changing consumption patterns. Earlier, co-branded cards were limited to specific categories like oil marketing companies or airlines. But now, we’re seeing adoption across diverse sectors—grocery chains, pharma chains, and even coffee shops.

Additionally, the rise of online businesses has concentrated consumer spending in a way that makes co-branded cards more viable. Brands can now scale loyalty programs and rewards through co-branded credit cards, providing meaningful value to their customers.

Hemant: That’s a significant shift. Are there any challenges or risks you foresee as the number of co-branded cards continues to grow in India?

Ram: The primary challenge is ensuring these cards remain relevant. If too many programs are launched without offering real value, there’s a risk of fatigue among consumers. Programs that fail to deliver meaningful benefits will naturally phase out.

Another consideration is data privacy. As co-branded card adoption grows, brands and issuers must act responsibly to protect customer data. Without trust, the ecosystem cannot thrive.

Elroy: That’s a valid point about data privacy. With multiple stakeholders involved—brands, issuers, and tech providers—how do you see the revenue model for co-branded cards shaping up?

Ram: The revenue model is quite dynamic. For banks, credit cards are among the most profitable products in their portfolio, especially in the unsecured lending category. Co-branded cards are even more lucrative because they allow banks to tap into ready customer bases provided by their brand partners.

Typically, the costs are shared between banks and brands. For example, brands often contribute to cashback or rewards to drive customer loyalty. Additionally, customer acquisition costs are significantly lower for co-branded cards compared to open-market acquisitions, which can be as high as ₹3,000 per customer.

Hemant: So, co-branded cards reduce acquisition costs for banks while giving brands access to financial tools they couldn’t develop independently?

Ram: Exactly. It’s a win-win situation. Brands get loyalty, and banks improve profitability by optimizing costs and co-funding rewards with their partners.

Elroy: And what about players like Hyperface, who are enabling these co-brand programs? What does the revenue model look like for tech providers?

Ram: For tech providers like us, the revenue model is a mix. It includes one-time setup fees, transaction-based fees, and milestone-based payments. Additionally, we identify specific challenges for banks, like reducing servicing costs or improving repayment rates, and create solutions that generate value for both the bank and us.

Hemant: Ram, you mentioned how co-branded credit cards can be more profitable for banks if they’re executed intelligently. Could you explain how that works?

Ram: Sure. For banks, co-branded cards offer higher returns on assets compared to other banking products. This is because credit cards in the unsecured lending space are among the most profitable. When executed well, the rewards and loyalty program structures can be co-funded by the brand, ensuring that the bank doesn’t bear all the costs.

For example, a bank might offer a 5% cashback, but the grocery store or fashion brand might cover part of the expense because they’re also gaining customer loyalty. This shared responsibility makes the entire process much more sustainable and profitable.

Elroy: That sounds like a smart collaboration. How do the discounts work from the customer’s perspective?

Ram: It’s a great question. Let’s say a customer is buying groceries and using a co-branded grocery card that offers a 5% cashback. Then, the customer might use a fashion card from the same bank that offers a 10% discount on apparel. From the customer’s point of view, they’re simply saving money, but in reality, the bank and the brand are sharing the cost of those rewards.

The key here is that businesses like grocery stores usually operate with lower margins, while fashion brands have higher margins. This makes it easier for the fashion brand to offer higher rewards while keeping their costs manageable.

Hemant: So, co-branded cards enable a more flexible and profitable loyalty strategy for brands by balancing the reward distribution between them and the bank.

Ram: Exactly. It’s about striking the right balance between offering compelling rewards for customers and maintaining profitability for all parties involved.

Elroy: Ram, you’ve touched on the financial advantages for both banks and brands, but what role do tech providers like Hyperface play in this ecosystem?

Ram: As a tech provider, our role is to simplify and streamline the process of launching co-branded credit card programs. We work with both banks and brands to ensure smooth integration and help optimize the entire lifecycle of the card—from customer acquisition to rewards management and data analytics.

We essentially take care of the tech side, enabling banks and brands to focus on what they do best. The goal is to reduce friction in launching and managing these programs and provide valuable insights through analytics that help brands and banks make informed decisions.

Hemant: That sounds like a critical role in the process. But is there a specific revenue model for tech providers in this space? Is it just transaction-based, or do you also get a share of the benefits from these partnerships?

Ram: It’s a mix of different revenue streams. We earn through setup fees, ongoing transaction-based fees, and performance-related incentives. For example, if we help improve profitability through early repayments or reduce the cost of credit for a bank, we may receive a share of the savings generated.

This model is aligned with the success of the program. The better we help both the brand and the bank perform, the more we stand to gain. It’s all about optimizing the entire credit card ecosystem.

Elroy: That sounds like a smart, performance-based model. It keeps everyone incentivized to work towards the success of the program.

Ram: Exactly. It’s a shared success model where everyone benefits from the growth of the co-branded card program.

Hemant: Ram, we’ve discussed the advantages for banks and brands, but what about the role of the consumer? How do co-branded cards really benefit the customer from their perspective?

Ram: From the customer’s perspective, co-branded cards offer a more personalized experience. Instead of a one-size-fits-all credit card, these cards cater to their specific interests and spending habits. For example, a customer who shops frequently at a grocery store might benefit more from a grocery co-branded card offering cashback or loyalty points.

The real value for customers comes from the combination of rewards, discounts, and access to exclusive offers. They don’t just use these cards to pay—they get something back for their regular purchases, whether it’s cash, discounts, or priority access to events or services.

Elroy: So, it’s about offering more than just a payment method—it’s about creating an entire value ecosystem around it?

Ram: Exactly. Co-branded cards are a way of integrating customer loyalty into the financial ecosystem. Instead of managing separate loyalty programs, customers can use one card and benefit from a range of rewards that make sense to them.

Hemant: It seems like these cards really cater to customer behavior and make the whole shopping experience more rewarding. But, what challenges do you think will arise as co-branded cards become more prevalent in the market?

Ram: One of the challenges we might face is the potential for market saturation. With so many options available, customers might feel overwhelmed or fatigued by the number of co-branded cards they’re being offered. As the market grows, it will be essential for brands and issuers to create truly differentiated offerings that stand out and provide real value.

Elroy: So, differentiation will be key to ensuring customers don’t just abandon the cards after a while.

Ram: Yes, and also making sure that the loyalty programs are sustainable. If the rewards aren’t compelling enough or don’t match consumer expectations, the card could end up being neglected. It’s about creating long-term value for both the customer and the brand.

Hemant: Ram, you mentioned market saturation as a potential challenge. With the growing number of co-branded cards in India, do you think there’s a risk of consumer fatigue?

Ram: That’s definitely a possibility. As the number of options increases, customers might feel overwhelmed by the number of cards they need to manage. However, this won’t be an issue unless brands and issuers fail to offer real value through their loyalty programs. If these cards are not meeting the needs of the consumer, they will naturally fade away. The cards that will thrive are the ones that provide compelling rewards and unique benefits.

Elroy: So, creating a value proposition that truly resonates with the consumer is critical to avoid that fatigue?

Ram: Absolutely. The more personalized and relevant the rewards, the stronger the card’s appeal will be. It’s also important to consider how easy it is for the customer to use the card. If the rewards are complex or hard to redeem, that can also contribute to fatigue.

Hemant: Great point. So, what do you think will be the key to ensuring the long-term success of co-branded cards in the Indian market?

Ram: The key will be continued innovation and responsiveness to consumer needs. As long as co-branded cards evolve to reflect changing consumer behavior and preferences, they will remain relevant. It’s also essential for banks and brands to continuously optimize the rewards structure to ensure that they are driving real value for customers.

Elroy: So, agility and customer-centricity will be crucial for co-branded cards to succeed in the long run.

Ram: Exactly. The more aligned these products are with what customers actually want, the more successful they’ll be.

Hemant: Ram, we’ve discussed many aspects of co-branded cards, from consumer benefits to market challenges. With the increasing role of technology, how do you see platforms like Hyperface helping businesses scale co-branded card programs?

Ram: Technology is a game changer in this space. Platforms like Hyperface simplify the entire process of launching and managing co-branded credit card programs. We provide the tools that help banks and brands integrate seamlessly, manage rewards, and leverage customer data to drive targeted offers. We act as the bridge that makes co-branded programs more efficient and scalable.

Elroy: So, by streamlining the tech side, businesses can focus more on customer engagement and loyalty, while Hyperface handles the complexity behind the scenes?

Ram: Exactly. We help businesses and banks stay focused on delivering value to the customer without worrying about the technical complexities. Our goal is to make the process as frictionless as possible, so everyone can focus on what they do best—whether it’s managing a brand or issuing cards.

Hemant: It sounds like the key to scaling these programs effectively is making the process simpler for everyone involved.

Ram: Absolutely. The easier it is for banks and brands to collaborate, the quicker these programs can scale. We make it possible for them to launch innovative co-branded card programs with minimal effort and maximum impact.

Elroy: Ram, with all the growth and opportunities in co-branded credit cards, how do you see the regulatory landscape evolving, especially with the increasing role of data sharing and privacy concerns?

Ram: That’s an excellent question. The regulatory landscape is evolving, particularly around data privacy and consumer protection. As the co-branded card market grows, it will be important for businesses to build trust with consumers, especially when it comes to how their data is used.

The regulators are taking a cautious approach, ensuring that any data shared between banks, brands, and tech providers is done so responsibly. Right now, the key focus is on ensuring that the ecosystem is trustworthy and secure before allowing more open data sharing. Once we’ve built sufficient trust, we may see more relaxed regulations.

Hemant: So, it’s about striking the right balance between innovation and ensuring consumer protection?

Ram: Exactly. The challenge will be to allow for innovation without compromising consumer trust. As long as brands and banks are transparent about data usage, and consumers feel confident that their information is secure, the ecosystem can grow while respecting privacy concerns.

Elroy: It sounds like we’re still in the early stages of a rapidly developing space, and the regulations will continue to adapt as the market grows.

Ram: Absolutely. The key will be for all stakeholders—banks, brands, tech providers, and regulators—to work together to create a balanced ecosystem that fosters innovation while maintaining consumer trust.

Hemant: Ram, you’ve mentioned trust and data privacy several times. As co-branded cards become more common, how important will customer education be in this space?

Ram: Customer education will play a crucial role in the success of co-branded credit cards. Consumers need to understand not only the financial benefits but also how their data is being used and what protections are in place. If customers are educated on the value and safety of these products, they are more likely to trust and adopt them.

Elroy: So, transparency will be key to building that trust?

Ram: Absolutely. Clear communication about the terms and conditions, as well as how data is handled, will be essential. Customers need to feel confident that they are making informed choices.

Hemant: And, do you think we’ll see more digital-first solutions that integrate education and customer engagement directly into co-branded credit cards?

Ram: Yes, definitely. As more digital-first solutions emerge, co-branded cards will likely integrate educational content, tips, and customer support directly into the cardholder experience. Whether it’s through mobile apps or digital platforms, businesses will have the opportunity to educate consumers on the benefits, usage, and security of co-branded credit cards.

Elroy: So, providing value goes beyond just the rewards—it’s about making sure the customer fully understands and feels secure using the product?

Ram: Exactly. The more educated customers are, the better their overall experience will be, and the more successful co-branded credit cards will be in the long term.

Hemant: Ram, as co-branded credit cards continue to grow in India, what do you think the future holds for this market in the next 5 to 10 years?

Ram: The future is very bright. In the next 5 to 10 years, I expect co-branded cards to become an even bigger part of India’s financial ecosystem. More businesses across various sectors—from e-commerce to healthcare—will realize the potential of loyalty-driven financial products. We will likely see a rise in digital-first co-branded cards that cater to tech-savvy consumers, particularly millennials and Gen Z, who are looking for seamless, personalized experiences.

Elroy: So, you expect the market to keep expanding with more innovative offerings?

Ram: Absolutely. The key will be innovation—not just in terms of rewards but also in how these cards integrate into consumers’ everyday lives. With more businesses joining the co-branded ecosystem, we’ll also see a higher level of customization, with tailored rewards based on customer behavior and preferences.

Hemant: And with that kind of growth, how do you think fintech companies and tech providers like Hyperface will contribute to that growth?

Ram: We will continue to play an essential role in enabling businesses to launch and scale co-branded programs efficiently. By providing the technological backbone for card issuance, data analytics, and customer management, we’re helping banks and brands focus on driving value for the customer while reducing the complexity of the operations.

Elroy: So, the role of tech providers will become even more important as this market expands?

Ram: Absolutely. As more players enter the space and more co-branded cards are launched, tech providers will be crucial in ensuring that the programs scale effectively and efficiently. We’re here to make sure the ecosystem works seamlessly for everyone involved—brands, issuers, and most importantly, the customers.

Hemant: Ram, as we wrap up, what advice would you give to businesses and brands looking to enter the co-branded card space in India?

Ram: My advice would be to focus on building a strong partnership with the right issuer and technology provider. The success of co-branded cards depends on collaboration. The issuer brings the financial expertise, the brand brings the customer loyalty, and the tech provider like us ensures smooth integration and scalability.

Elroy: So, finding the right partners is crucial for launching a successful program?

Ram: Absolutely. Co-branded cards are all about synergy. It’s about aligning goals, understanding customer behavior, and leveraging data to offer personalized rewards that resonate with consumers.

Hemant: And do you think we’ll see more partnerships between non-financial brands and fintech companies in the near future?

Ram: Definitely. As fintech continues to grow in India, non-financial brands will increasingly look at ways to integrate financial products into their offerings. Co-branded cards are an ideal solution for brands looking to build deeper relationships with their customers and offer more value.

Elroy: It sounds like the future is full of opportunities for innovation and collaboration in the co-branded card space.

Ram: Exactly. We’re just getting started, and I believe the potential is huge. As more businesses embrace this model, we’ll see the next wave of innovation in India’s fintech landscape.