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May 26, 2022

Store Cards vs Co-brand Cards

Merchants who are considering a branded payment option may wonder whether a co-brand card is the right solution for their business. Sometimes called open-loop credit cards given they can be used anywhere, co-brand cards have several important differences from store cards.

Co-brand credit cards are issued by a bank in partnership with one of the major networks (typically Visa or Mastercard). Since these products run on traditional network rails, they can be used by customers anywhere the customer wants to shop. This stands in direct contrast with store cards, which can only be used at the specific merchant issuing the card.

As with store cards, most co-brand cards include a rewards program to drive customer loyalty. Since customers can use a co-brand card anywhere, they can earn points on everyday purchases. These rewards are funded by the interchange that other merchants pay to process the co-brand card transactions.

Co-brand cards are most effective when the rewards offered are highly valued by customers. It’s no accident that the largest and most successful co-brand programs are found in the Travel and Entertainment space. Airlines and hotels can offer free flights and rooms, which are highly valued by customers. Providers can offer up these rich benefits because their marginal cost to do so is quite low – the plane is taking off whether the last seat is filled or not! Most retailers are unable to achieve similar traction with co-brand programs because they simply can’t offer rewards that are rich enough for a customer to move their spend from other cards in their wallet to the co-brand product.

The ability for customers to use a co-brand card anywhere also creates an important wrinkle for merchants to consider. Many merchants appreciate store cards because they create additional purchasing power for a customer with a credit line that is specific to their store. With a co-brand card, the credit line extended to a customer can be used anywhere the customer wants to shop. As a result, a customer using a co-brand card for everyday purchases may not have sufficient line for their next purchase at the merchant’s store.

For many of the reasons outlined above, we believe closed-loop store cards are the best fit for the majority of merchants. With Tandym, merchants can design, integrate, and launch their very own store card and associated loyalty program in just a few days.

Want to learn more? Contact a Tandym sales representative today!