The news: Outdoor specialty retailer REI Co-op and Capital One launched the zero-annual-fee REI Co-op Mastercard, per a press release.

• Cardholders earn 5% cash back for REI purchases and 1.5% cash back for all other purchases. They also qualify for Mastercard's World Elite benefits.
• New cardholders can get a $100 REI gift card if they make a nonstore purchase within the first 60 days.
• Cardholders also get a $50 statement credit when they use their cards to pay for REI Co-op experiences and 5% cash back for donations to the REI Cooperative Action Fund.

Why it’s worth watching: Despite only having a handful of co-brand portfolios, Capital One has extended its reach by targeting large retail brands like Saks and Walmart, which held about $10 billion in balances when it acquired the portfolio in 2019. Capital One moved further into retail by acquiring the Williams-Sonoma portfolio last July. It also plans to pilot a co-branded credit card with Kohl’s in 2023.

Retail portfolios are a popular co-brand category for issuers because they benefit from strong loyalty among shoppers and tend to have high repeat engagement. There were 51 retail co-brand portfolios in the US in July 2021, making it the most popular co-brand segment, according to Insider Intelligence estimates.

Our take: Capital One’s REI Co-op Mastercard seems to lack some of the digital features offered in other co-brands, but it will still likely appeal to a niche set of consumers.

• Other Capital One-issued co-brands have prioritized online shopping. For instance, the Walmart card offers higher rewards for online purchases—the REI card seems to offer the same rewards for in-store and online purchases.
• But this may not be a deal-breaker for loyal REI customers. The card still offers notable rewards for REI purchases. And the 1.5% cash back for other purchases is comparable to some of the general purpose cards offered by Capital One. The card’s environmental and charitable features—it’s made out of 85% recycled materials and rewards customers for donations to the social and environmentally-focused REI Cooperative Action Fund—may also be key selling points for customers.

The bigger picture: The co-brand card space is in flux.

Payment providers have launched and revamped cards, and big-name portfolios have changed hands as retailers look for issuers that can help them strengthen customer loyalty through new and improved perks. The movement highlights how issuers view co-brands as revenue and loyalty drivers.

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a daily recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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