Cobranded Credit Cards: To Fee or Not to Fee

Credit cards are a powerful tool for brands looking to deepen customer loyalty, drive revenue, and create lasting engagement. In fact, according to a recent study, customers who became cardholders generated a 42% increase in card revenue one year later—compared with customers who didn’t open a card.

Once your team decides to implement a co-branded card program, you face a key decision: Should you offer a fee-based card, a no-fee card, or both?

The choice isn’t just about pricing. Determining which way to go requires understanding your customers’ needs, aligning with their spending habits, and crafting a strategy that delivers value for both your brand and your audience. Let’s explore fee-based and no-fee cards—when to market each, how they impact one another, and the operational considerations behind managing them.

Understanding fee-based cards versus no-fee cards

Fee-based co-branded credit cards typically charge an annual fee in exchange for premium perks, such as accelerated rewards, VIP access, travel benefits, and exclusive experiences. They’re designed for high-value customers who want more from their relationship with your brand and are willing to pay for it.

No-fee cards, on the other hand, eliminate the barrier of an annual fee, making them accessible to a broader audience. While the rewards may be less robust, these cards appeal to value-conscious consumers or those new to your brand, offering a low-risk entry point into your ecosystem.

Both card types play a role in a successful co-brand strategy, but the key is knowing when and how to leverage each.

Deciding between them

Choosing between a fee-based and no-fee co-branded credit card—or deciding to offer both—demands a deep understanding of your target audience, business goals, and competitive landscape. Here are some key factors to consider:

1. Understand your target audience

The demographics, preferences, and behaviors of your customers should heavily influence your decision. Consider the following questions:

• Are your customers driven by value, or are they seeking experiences?
  Value-conscious customers may gravitate toward no-fee cards, while experience-driven customers might appreciate the elevated perks of a fee-based card.
• What’s their typical spending behavior?
  High-spending customers who frequently engage with your brand (e.g., frequent travelers and luxury shoppers) are more likely to see the value in paying an annual fee for enhanced benefits.
• What stage of life are they in?
  Younger customers or those new to credit may prefer no-fee cards as a low-risk way to start building credit, whereas established professionals or affluent customers may seek fee-based cards for their premium offerings.

2. Align with your brand positioning

Your card offering should reflect your brand’s identity and values. For example:

• If your brand is known for luxury, exclusivity, or premium experiences, a fee-based card aligns naturally with your positioning.
• If your brand emphasizes accessibility, inclusivity, or affordability, a no-fee card may better resonate with your audience.

Look at what competitors in your industry are offering. If competing brands only offer no-fee cards, introducing a fee-based option with standout perks could differentiate your program. However, if fee-based cards dominate your space, a no-fee card could attract underserved customers.

Consider the lifetime value of customers who would choose each type of card. Fee-based cardholders often generate higher revenue through annual fees and increased spending driven by the desire to access premium rewards. However, no-fee cardholders can provide long-term value by growing beyond an entry point to your brand to potentially upgrading to fee-based cards over time.

If you’re unsure which card type will resonate most with your audience, consider testing one option and expanding later. Many successful co-branded card programs begin with a single card type and then evolve based on customer feedback and performance data.

Working together—or against each other

Offering both card types can expand your reach across customer segments, but it requires careful planning to ensure they complement, rather than compete with, each other.

Different card types mean different marketing strategies

A well-designed co-branded credit card program can strengthen customer relationships, boost brand loyalty, and drive long-term growth. Understanding the nuances between fee-based and no-fee cards—and strategically marketing each—will help your brand maximize the impact of your investment.

Whether you’re building your first co-branded credit card or refining your brand’s existing card strategy, the key is to stay customer focused. Align your offerings with their needs, preferences, and behaviors, and you’ll create a program that resonates across generations.

Luke Olliff is senior director, Strategic Services at The Lacek Group. For more than 30 years, The Lacek Group has been perfecting the art and algorithms of brand devotion. We help world-class brands identify their highest-potential customers, engage them across channels throughout their lifecycles, personalize each relationship for optimal long-term results, and measure the true effectiveness of those efforts. The Lacek Group is an Ogilvy One company.