Co-branded Card Issuance, Explained — I
Part I — Program Design
According to a recent TechCrunch report, technology giant Google seems to be working on rolling out its own co-branded payment card. This follows Apple’s move last year when Apple launched it’s own credit card in partnership with Goldman Sachs & MasterCard.
Globally, co-branded cards are increasingly getting traction with many major brands and fin-tech firms coming out with their own co-branded cards. Locally, in India we have seen multiple private players releasing their own cards in partnerships with different banks. Some of these include — Flipkart, Practo, Apollo Hospitals, SlicePay, Ola, MoneyTap etc. This series tries to explain the value proposition of these card programs and their life-cycle at a broad level.
Co-branded cards — what?
Central banks across the world outline the guidelines for banking, payments and settlements systems in respective countries. In India, banks which are officially the entities regulated (RE) by RBI — the central bank of India , are allowed to issue payment cards. Non-banking entities are independently not allowed to issue cards. And so, if any non-banking entity plans to issue cards to its customer base, it need to partner with a bank (called sponsor bank or issuer bank) for card issuance.
These cards are usual EMV / contact-less cards issued with card brands (Visa/ MasterCard/ RuPay etc) and can work at any POS terminal, online merchant website or an ATM.
Co-branded cards — why?
Why do brands want to issue cards to their customers? What are the business are business objectives? What value does it add for the customers? What’s in it for the sponsor banks? Let’s look at the value co-branded cards add to each of these parties.
The Brands
- Repeat Usage, higher spends → Higher avg. revenue per user (ARPU)
- Loyalty → Retention, Word of mouth marketing (Better LTV:CAC)
- Product differentiation, top of mind recall → Brand building
- Interchange revenue (% earning on every card spend) sharing with sponsor bank → Revenue, Profits
- Understanding customer spend patters → pricing optimization, personalized customer experience, credit risk assessment
- Card controls (spend channel & velocity controls) → De-risking of loans
- Strategic alliances with banks, networks and other third parties → Investment opportunities, channel sales, joint PR & marketing
- Complementary products offers/discounts → Bundling, commission earnings.
The Customers
- Belongingness to brand community, priority offering, exclusivity → Experience
- Customized offers, discounts, benefits → Savings
- Personalization → Higher relevance, less spam (Better Signal:Noise)
- Access to credit (in case of credit programs) → Alternative financing
- Card controls→ Budgeting options, pre-approvals, spend management (for businesses)
The Banks
- Interchange Revenue sharing → Revenue, Profits
- New user accounts → Low cost acquisition, cross sell opportunities
- New loan accounts (if credit product) → Loan GMV, interest earnings
- Better activation rates compared to conventional bank cards
- Better usage ratio (active cards in last 30 days / total issued cards) than conventional cards
- Brand visibility
- Float (if debit product — pre-funding maintained in settlement account)
Co-branded cards — how?
- Value Proposition Design: Brands need design the value proposition for the card — why do we want to do this & why should our customer opt-in for this card program?
- Program Approval: Once value prop is designed & validated, the brand then needs to find a sponsor bank for the program. Brand needs to discuss program details (credit/debit/corporate etc.) and secure co-branding approval from the bank & network involved (Visa/ MC / Rupay etc.). Other considerations here include program limits, domestic/international acceptance, physical/virtual card, chip/contact-less cards etc.
- Card Design: The brand needs to design the cards in accordance with Network’s and bank’s brand guidelines. The same needs to be approved by the bank and the network involved.
- Card Processing: Transaction processing typically involves multiple integrations and handshakes. Card processing platform is required for this. The brand needs to take a make-or-buy call here. It is huge effort to build such a platform and so, platform-as-a-service (PaaS) providers like Matchmove, M2P, Zeta, Happay are go to choices for brands unless they want to build the platform themselves as a core component of their business. More here.
- Card Printing: The brand needs to evaluate card manufactures/ printers (for minimum order quantity (MOQ), lead times, commercials, logistics integrations, status callback options etc.) and associate with one of the printers for card printing & personalization (embossing) once the program is launched.
- Other 3rd Parties: The brand needs to assess (for cost, geographic coverage, turn around times, API availability etc.) and finalize on other third party providers for various life-cycle activities like customer KYC, card dispatch to the customers etc.
- Experience Design: How does a user enroll for the card program? What are the KYC option. How is card activated? How does a user dispute a transaction? How do the funds flow & settlement happen between different parties involved? All these card life-cycle questions need to be address and baked in the UX design of the product.
Some banks offer full stacks service to the brands where bank front faces and owns all these aspects. In those cases, it becomes operationally easy for the the brands to go live with such programs. However, the downside is that the customer experience is sub-par and program customization as per brand’s preference is minimal.
Reach out to me if you would like to discuss further on this topic. I am at bits.ankit@gmail.com | https://www.linkedin.com/in/a4ankit/ .
