Trends in Affinity Partnerships and Co-branding in the UK Personal Lending Market

Affinity partnerships and co-branded credit cards are currently experiencing diverging trends. Affinity lending is stagnating at best, while co-branded credit cards seem to be a market on the rise. Indeed, what will their futures look like?

Report Highlights

Following in the footsteps of the US, co-branding in the UK developed rapidly during the 1990s as the credit card market became increasingly competitive. The market saw a surge in the number of co-branded cards during the decade as well as after. Both affinity credit cards and personal loans are losing ground. Indeed, affinity partnerships in general are losing out because of their innate disadvantages, among which include threats of cannibalization, pressure on margins and higher costs. As affinity personal loans continue to decline further, many wonder if there is a way to change the model. Going forward, lenders must make sure that every partnership they make has a particular selling point, and one that will result in an eventual profit, whether through lower acquisition costs or a greater number of customers.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Affinity and co-branding are two types of partnership in the personal lending market 2
While sharing similarities, affinity marketing and co-branding are separate business models 2
Affinity partnerships took off during the 1990s 3
There are a number of benefits for lenders who enter affinity partnerships 3
There are a significant number of large and small affinity partnerships in the UK 4
Co-branding also developed rapidly during the 1990s 4
Issuers have a range of reasons to get involved in the co-branding credit card market 4
There are a large number of co-branded credit cards available in the UK 5
Yet each is experiencing diverging trends 5
Affinity partnerships are stagnating at best 5
Affinity credit cards are losing ground to co-branded cards 5
Moreover, affinity personal loans have been in decline for a number of years now 6
Indeed, affinity partnerships are not as competitive as other schemes because of their inherent disadvantages 7
While co-branded cards continue to expand 7
Co-branding is expanding because it allows issuers to differentiate their offering in a saturated market 7
Such trends are likely to continue in the short to medium term 8
Affinity credit cards are likely to continue to stagnate 8
Moreover, the affinity personal loan model is in danger 8
For example, HBOS is gradually streamlining its affinity program 8
MBNA is also looking to wind down its dependence upon affinity partnerships 8
Meanwhile, co-branded credit cards are likely to increase in popularity 9
Yet issuers and merchants must think critically about whether or not this is the right opportunity for them 9
APPENDIX 11
Supplementary Data 11
Methodology 11
Definitions 11
Affinity partnership 11
CAGR 11
Co-branded card 12
Consumer credit 12
Gross advances 12
Further reading 12
European consumer credit reports 12
UK consumer credit reports 13
UK consumer credit briefings 13
Forthcoming UK consumer credit briefings 13
Relevant links 13
Ask the analyst 13
Datamonitor consulting 14
Disclaimer 14

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Table 1: Credit cards in issue in the UK by type, 2001-2005 6
Table 2: Number of cards and value of transactions for affinity and co-branded credit cards, 2001-2005 11


Figure 1: General characteristics of affinity partnerships and co-branding, 2007 2
Figure 2: Co-branded credit cards continue to expand while affinity credit cards have stagnated recently, 2001-2005 6

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