Airlines pioneered co-branded credit cards decades ago as a way to reward frequent flyers and strengthen customer relationships in a rapidly growing industry. Since then, co-branded cards have expanded across nearly every sector—from retail and restaurants to hospitality.
Not all co-brands, however, are created equal. Consider Wells Fargo’s recent bad investment with its Bilt partnership, which targeted a rental market niche that failed to scale as expected. Similarly, Goldman Sachs’s push into consumer lending through its partnership with Apple led the firm to extend credit at less-than-ideal rates—ultimately a costly error.
As Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, noted in theCo-Branded Credit Cards Smoke, Private Labels Choke report, these setbacks do not signal a broader turning point for either the credit card industry or co-branded products, both of which are thriving.
Instead, both the successes and the stumbles offer valuable lessons for smaller issuers exploring entry into the co-brand market. Despite its long history and competitive landscape, opportunities still exist.
Addressing New Markets
Some of these opportunities have emerged as older models decline. Private label cards, tied to a single retailer or brand—have been losing traction for years.
Part of the issue is limited usability, but structural challenges also play a role. These cards are often geared toward lower-credit segments, resulting in weaker asset quality. To compensate, issuers frequently charge higher interest rates—sometimes approaching 36%—which can rapidly snowball a small clothing purchase into burdensome debt. As a result, the private label segment has contracted in recent years.
In the gap left behind, co-branded programs have found footing, particularly those offered by Synchrony and Bread Financial.
“Synchrony built this big ecosystem and they’ve addressed some markets, a good example is in healthcare,” Riley said. “Healthcare is fragmented but there’s tons of throughput in it, so Synchrony has come up with a good solution called CareCredit. If you go to your dentist or you go to your plastic surgeon, it’s readily available and it’s a closed loop and it kicks off a lot of revenue for them.”
“That’s an area that banks have tried to address over the years, but they haven’t really done it well,” he said.
Notably, Bread itself evolved from the private label space, having once served as JCPenney’s credit partner.
“What Bread has done is they’ve made some big bets on buy now, pay later, but their model is a bit different than, say, Klarna,” Riley said. “Klarna looks to be a one-trick pony with retailers and Bread is trying to deepen its exposure there. It has come up with plans that get reused within the space and it’s a different target market.”
Striking the Right Balance
When issuers identify the right vertical, co-branded partnerships can drive significant account growth and transaction volume. Still, several pitfalls warrant careful consideration.
First, partnerships must be genuinely mutually beneficial. Issuers often underestimate the value they bring. While partners may deliver new cardholders, a co-branded card can also enhance the partner’s credibility and customer loyalty.
Underwriting is another common friction point. Partners may resist when their customers are declined, but the Goldman/Apple experience underscores the risks of loosening credit standards to accommodate a partner’s preferences.
Even successful partnerships require contingency planning. The institution must always remain liquid, which means issuers may have to make the difficult decision to end a partnership. In some cases, the best decision is not to enter a partnership at all—particularly if there is a risk of business failure on either side, which could damage both brands.
Another recurring issue is pursuing co-brands primarily to boost account volumes, a mistake reminiscent of past private label strategies.
“When I was at Citi a long time ago, if you had a Goodyear credit card, we would score that against you,” Riley said. “As opposed to a FICO score which might give you credit, we would say, ‘Why does this guy need a credit card just to get tires, as opposed to having a bank-graded Mastercard or Visa where it could be used anything?’ How many times do you buy tires, once every six years or eight years? Having a credit tool around that is kind of silly.”
Ultimately, selecting the right partner is a critical step. But, so is understanding the dynamics of the partner’s industry.
“Some sectors are better than others,” Riley said. “I have a Verizon co-brand card—through Synchrony actually—and it pays really well. I don’t just use it in Verizon; they get my spend because I get 4% back at groceries. If I want to buy beer, I don’t get anything in a liquor store, I can go to Publix and get 4% cash back and being able to move that is important.”
Commitment and Management
Despite the risks, co-branded cards continue to offer meaningful upside for smaller issuers. When structured effectively, these programs can materially impact profitability—just as they have for many airlines over the years.
While major issuers have secured many high-profile partnerships, regional and niche opportunities remain accessible.
That said, co-branded programs demand sustained commitment. Managing a well-balanced cobrand program requires strong-buy in from stakeholders and constant monitoring, which often becomes a strain as portfolios scale.
“These take a lot of commitment to do them,” Riley said. “If you’re going to do it as a small South Carolina bank, you might affiliate with a school system or you might affiliate with a grocery chain or something like that. But it’s very tough to get with all the work that’s required to make this happen. This can be an obstacle.”
