Affinity Card

From CEOpedia | Management online

Affinity card - a type of a payment card issued by a financial institution in conjunction with a non-financial group, such as an educational institution, sports franchises or non-profit organization, in order to support activities of such a group. The non-financial group allows the financial institution, e.g. bank, to issue a credit card which is identified with that group (by name/logo) and in exchange receives a part of commission from issuing the card and from each transaction the card holder makes (House of Representatives 1989, p. 251-252).

Basic affinity card mechanism

Firstly introduced in the UK in 1987 by the Bank of Scotland, the affinity card uses a mechanism of so-called "emotional spending" which normally represents shoppers compulsive habits of doing shopping and transcends it into a positive act of selfless consumerism which supports activities of a charitable organization or a non-profit institutions which the card holder can usually choose on his own (E. Galanter and other, 2011, p. 205).

In exchange for the share in earnings from the usage of the affinity card, the financial institution gains access to the charity's database of members and supporters and obtain a partner who may endorse a product by allowing its name and logo to be used on promotional materials (S. Adkins 2011, p. 121-122).

Because affinity cards work on the same principle as reward cards, they are often confused with co-branded cards. Nevertheless, the difference between the affinity and co-branded cards is that the percentage generated from each transaction made with an affinity card is not given back to the card holder but contributes to the non-profit institution of card holder's choice.

Although affinity cards are likely to be presented as a collective benefit for the financial institution, charitable organization, and card holder, there may be certain negatives as well. Affinity cards usually charge higher fees than other cards as well as offer fewer perks. The percentage donated to the specific charity is also relatively small and could vary between 0.25-1 percent, nevertheless, the popularity of affinity cards is still growing and gaining more and more users (E. Galanter and other, 2011, p. 205).

Examples of Affinity Card

  • Walmart Credit Card: Walmart offers a credit card that allows customers to earn 5% cashback on in-store purchases, 2% cashback on Walmart.com/Murphy USA fuel purchases, and 1% cashback on all other purchases.
  • Amazon Rewards Visa Signature Card: Amazon offers a rewards credit card that allows customers to earn 5% cashback on Amazon.com purchases, 2% cashback at restaurants, gas stations, and drugstores, and 1% cashback on all other purchases.
  • Starbucks Rewards Visa: Starbucks offers a rewards credit card that allows customers to earn 3X Stars (points) for every $1 spent in-store, 2X Stars for every $1 spent at Starbucks stores, and 1X Stars for every $4 spent everywhere else.
  • Costco Anywhere Visa Card: Costco offers a rewards credit card that allows customers to earn 4% cashback on eligible gas purchases (including at Costco), 3% cashback on restaurant and eligible travel purchases, and 2% cashback on all other purchases from Costco and Costco.com.

Advantages of Affinity Card

An affinity card provides numerous advantages to both the financial institution and the non-financial group. Specifically, the card holder benefits from the discounts and rewards associated with the card, while the financial institution and non-financial group benefit from the increased revenue generated from the card. The following are the main advantages of an affinity card:

  • Increased revenue: The financial institution and non-financial group benefit from the increased revenue generated by issuing and processing the card, as well as from the increased transactions that card holders make.
  • Increased exposure: The non-financial group benefits from the increased exposure associated with having their name and logo on the card. This can lead to increased name recognition and brand loyalty, as well as increased donations from card holders.
  • Discounts and rewards: Card holders benefit from the discounts and rewards associated with the card. This can include discounts at certain retailers, or rewards for using the card for certain purchases.
  • Convenience: Card holders benefit from the convenience of having an all-in-one payment system, which is easy and efficient to use.
  • Improved customer experience: The financial institution and non-financial group benefit from the improved customer experience associated with the card. This can lead to increased customer satisfaction and loyalty, as well as increased revenue.

Limitations of Affinity Card

The use of affinity cards has a number of limitations:

  • The financial institution will be in charge of issuing and managing the cards, meaning that the non-financial group does not have full control over the process.
  • Since the non-financial group receives a part of the commission from each transaction, it may not be able to cover the costs associated with issuing and managing the cards.
  • The non-financial group may not be able to fully control the type of transactions that are made with the card, and may even face reputational risks if the card holders use the card for illicit activities.
  • The non-financial group will have limited control over the terms of the card, such as the interest rates, fees, and other charges associated with the card, as these are ultimately determined by the financial institution.
  • The card may not be accepted by certain merchants, as they may not be willing to pay the commission fees associated with the card.
  • The card may not be attractive to potential customers, as they may prefer other payment methods with lower fees and more flexibility.

Other approaches related to Affinity Card

  • Credit Card Sponsorship: This involves financial institutions, such as banks, partnering with non-financial groups to issue credit cards that are identified with the partnering group (by name/logo). The financial institution pays a commission to the non-financial group for each card issued and for each transaction made.
  • Co-branded Cards: This type of card is a combination of a credit card and a loyalty card, whereby the loyalty program is integrated into the credit card system. The cardholders receive rewards from the partner non-financial groups in exchange for using the card.
  • Bonus Points: This type of card also combines a credit card and a loyalty program. Cardholders earn bonus points for every purchase they make with the card, which can be redeemed for rewards from the partner non-financial groups.
  • Cashback Cards: This type of card rewards cardholders with cashback when they make purchases with the card. The cashback can either be used to offset the cost of purchases or redeemed for rewards from the partner non-financial groups.

In summary, affinity cards involve financial institutions partnering with non-financial groups to issue cards that are branded with the non-financial group's name/logo. Cardholders receive rewards from the non-financial groups in exchange for using the card. Other types of affinity cards include co-branded cards, bonus points cards, and cashback cards.


Affinity Card — recommended articles
Pay per lead — Fund supermarket — Coupon book — Bancassurance — Optional product pricing — Affinity marketing — Incentive marketing — Caisse populaire — Indirect sales — Probability sampling

References

Author: Maksymilian Piaskowski

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