August 09, 2010
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News: What's In An Affinity Card
Under the weight of new legislation that limits credit card companies from raising interest rates and fees, lender are being forced to seek out new ways to generate income. Many of the lenders have pressure its product development divisions to create products that will conform to the law while continuing to produce profits. One way that banks have overcome this challenge is by offering co-branded and affinity credit cards. Many of these types of cards are focusing on the health care, supermarket, and drug store businesses. However, there's a catch. The credit card market has already become overly saturated leaving lenders to seek outside the U.S. borders for increased opportunities in growing its affinity cards.
Although several lenders have expanded its focus to include countries outside the U.S. borders, evidence shows that supermarket co-branded credit cards are practically non-existent in the U.S. Co-branded supermarket cards are widespread in Europe and have proven to be very profitable. There is a drawback that appears to be holding consumers back from obtaining co-branded or affinity credit cards; they are typically associated with higher interest rates and fees. Supermarkets and pharmacies usually operate on lower margins making it more difficult to produce profits after paying for payment processing fees. However, from a consumer's point of view, lower interest rates and rewards offered by their bank card far outweighs any benefits of supermarket and drug store cards. Lenders continue to be challenged in convincing the cardholder that supporting their local supermarket, pharmacy, or charitable organization is rewarding.
Despite the concerns of higher interest rates and fees, affinity credit cards have become a popular market. Cardholders love them because it gives them an opportunity to support their favorite charity or non-profitable organization. Co-branded cards give shoppers the extra perk of receiving special offers from their favorite merchant and thereby recoup a portion of the interest. Of course, if you typically pay your card balance off in full each month, you will be the real winner because you will not be paying any interest.