Co-Branded Credit Cards as a Credit Gateway: Retail Demand Effects of First-Time Credit Access

Abstract

Co-branded credit cards are widely used by retailers to strengthen customer relationships and increase demand. We study the retailer-demand effects of first-time credit access in Peru by leveraging a temporary underwriting pilot that extended credit to applicants with no or limited formal credit history. Linking credit decisions to item-level transactions at a large multi-banner retailer, we find that card approval nearly doubles monthly spending at the partner retailer. A decomposition of the spending response shows that this lift is driven primarily by increased shopping frequency (64%), with smaller contributions from basket size (27%) and the average price paid per item (9%). Credit access induces purchases in new product categories, whereas retailer-controlled, cardholder-exclusive promotions account for a sizable share of the aggregate lift by deepening spending within existing categories. Consumers with prior credit access exhibit qualitatively similar but substantially smaller responses. Together, these findings show that a retailer that expands access to formal credit may capture a significant and persistent share of ongoing demand through increased store traffic.

Keywords: Co-Branded Credit Cards, Alternative Data, Financial Inclusion, Retail Ecosystem, First-Time Borrowers