Posts Tagged ‘rewards’
Just in time for Black Friday and the holiday season, credit cards are making a comeback.
According to a USA Today article, “On Black Friday, payments made with credit cards rose 7.4% from a year earlier, vs. an increase of 3.4% for payments with signature debit cards,” according to First Data, a payments processing firm. An analysis by Javelin Strategy & Research forecasts that credit card payments for online purchases will increase 63% from 2011 to 2016, vs. 2% for debit cards. During the recession, the use of credit cards declined as cost-conscious consumers switched to debit cards and cash for their purchases.”
There are likely a number of reasons for the return to credit cards. Effective from Oct 1st, the Durbin Amendment, which capped interchange fees, resulted in most banks eliminating rewards on debit cards. Thus, consumers wanting rewards for purchases needed to place them on credit cards and those consumers without credit cards may have applied for them during the past six months. (Personally, I know I did apply for a new credit card with rewards during the past six months due to the elimination of rewards on my debit card.) Additional evidence supporting my theory comes from the Federal Reserve Bank of New York that reported that credit account inquiries increased for the second quarter in a row (an indicator of consumer credit demand). This may indicate a possible, albeit slow, return to borrowing habits. Anthony Karydakis, the chief economist at Commerzbank in New York, said “slowly but steadily, consumers are exploring more normal ways of returning to a more normal pattern when it comes to borrowing habits.”
It is interesting to note that retail sales during Thanksgiving weekend climbed 16% with shoppers spending $398.62 on average, which is up from $365.34 a year earlier, according to the National Retail Federation who cited a survey from BIGresearch. ComScore also reported that web sales for Black Friday surged 26% to $816 million and 18% to $479 million on Thanksgiving Day. Although, personally, I did not shop during the Thanksgiving weekend, I know I will be charging my Christmas gifts on a credit card in the near future for the rewards. The jury is still out whether or not I will spend more or less in comparison to last year…. Hopefully less! But doesn’t it always seem that you end up spending more than you expected to around the holidays?
Consumers could also be suffering from “frugal fatigue” from the past three years, says Gerri Detweiler, author of Reduce Debt, Reduce Stress. She stated that “people are tired of having to cut back, and that can lead to spending more on credit cards.” Again, I completely agree in thinking that people want to spend a little bit more this holiday season after cutting back in previous years. Why wouldn’t someone want to get something nice for their family and loved ones for the upcoming holiday season? Either way, more consumers are using credit cards, which is good for banks, retailers, and the overall economy.
Rewards are confusing. It’s true. Even as a Comperemedia finance analyst, I don’t generally know how to redeem my points. Airfare, kitchen mixer, gift cards… what’s the best option? I love the simplicity of my cash card: every few months a chunk of my balance disappears without my help, but I know that it isn’t the most lucrative deal.
Chase and American Express are expanding the ways cardholders can redeem their rewards. Both issuers are offering cardholders the option to use points like cash to make purchases. Chase announced in June that it was upgrading Amazon.com cards by adding the feature “Amazon Shop with Points.” Cardholders can use the points earned on their Amazon.com cards to make purchases at the point of sale Amazon.com. The points can be redeemed at a rate of 1 point per 1 cent.
American Express made a similar announcement, offering cardholders the opportunity to use Membership Rewards points to buy Facebook ads. Small business cardholders can purchase ads with points through the OPEN Facebook page or the Membership Rewards website. No details about redemption rates were disclosed at the launch.
Using points as currency is likely to solidify the relationship between the Chase Amazon.com cardholder and Amazon.com by making the relationship more lucrative, and deepen the relationship between the Amex cardholder and the OPEN network by tying more business management features to the owners’ Amex cards. And making the process easier, by letting cardholders use the rewards at point-of-sale, instead of going through the rewards section of their credit card accounts can only help increase usage.
These redemption programs are easy to understand and alleviate the nagging feeling that I’m using my points wrong. It seems likely that more co-branded cards are likely to follow suit. Could this be a part of a new way of using rewards? Could they eventually be made into an actual currency, letting me use my points to buy a cupcake and a magazine at the corner shop? Even if a new super-convenient currency isn’t coming, I appreciate anything that helps me use my points better.
Q: What do you think will be the impact of the Durbin Amendment on
A: There will be significant pressure to scale back debit rewards programs – Chase has already announced that it will cut debit rewards for new customers in anticipation of the new rules. Also, I think the new rules will accelerate the trend towards relationship banking which was initially fuelled by the regulatory squeeze on overdraft fees. In an interesting twist we are now seeing consumers sign up for overdraft fees which might help the industry weather the potential reduction in debit card revenues.
Q: How is social media shaping loyalty marketing?
A: In my webinar we discussed the changing landscape for loyalty marketing and the fiercely competitive environment. Consumers are ruthless and will use the loyalty program with the highest cash back rate or the most points per dollar. These days consumers have easier access to information than ever before via the internet. The rapid growth of social media sites during the past two years means they also have access to vast array of recommendations and referrals. This represents a huge threat to loyalty marketers but, at the same time, it also presents an opportunity if positive news about your loyalty program goes viral.
Q: How can a card issuer build relationships if it doesn’t have a full
suite of banking products?
A: Focus on other touch points such as customer service, communications and branding. The best examples of this are American Express and Discover. Both have focused on customer service. Both compete aggressively for customer service awards so that they can promote this as a competitive advantage in their marketing materials.
Q: How can you create a loyalty program that is valuable to the consumer and something they will actually engage with and use?
A: Consumers want rewards for items they already purchase and they want instant redemption. The issuer that can crack instant redemption will be on to a winner.
Q: What features of the rewards program drives the decision to enroll and then engage – bonus at time of enrollment, bonus in certain merchant categories, earn rate, redemption options, point expiration, etc.?
A: In our research we found that the most powerful incentive for usage is simply being able to get more rewards for the dollar or the highest cash back rate. This was followed by the ability to redeem instantly which you can with many merchant (non credit card) rewards programs.
Q: Can you touch on firm offers of credit vs ITA?
A: The bulk of rewards offers continue to be pre-screened. ITA’s are used most frequently seen with cobranded rewards cards.
Q: ¬What is the biggest frustration with rewards that you have picked up in your research¬?
A: The missing piece is instant redemption. We discussed a couple of examples of issuers who have recently added instant redemption to their programs including Target and the Marriot Rewards program. Citi just announced that it is testing what it refers to as 2G cards developed by Dynamics, Inc. (see Lisa Hronek’s Blog “Cutting edge credit: push a button to pay with rewards”)
Q: ¬How do these trends apply to non-financial services loyalty cards?¬
A: The most popular rewards programs are those offered via a grocery or drug store chain. The challenge for the card industry is to figure out how to partner with these programs that are already entrenched in the wallet (consumers have 14 loyalty programs according to Colloquy). Non-financial loyalty programs are often more technologically advanced – Starbucks,for example, has a mobile loyalty program in operation – and credit card companies can learn from their experience.
Q: ¬What do you think the top 3 success metrics are for an effective loyalty program?¬
A: An interesting question given that rewards cards are, arguably, the “plain vanilla” cards of the new era. I say that because most people own a rewards card and many are receiving multiple offers for rewards cards in the mail. In other words, you have to have a rewards program if you want to compete for prime consumers. I would therefore say a measure of acquisition, such as new accounts, is measuring the rewards program; share of wallet – because that’s what it’s all about – and some type of redemption measure that factors in ROI.
Q: Given some of the downward trend you showed earlier, is there a market/consumer for a richer rewards card with a fee?
A: Yes, there is a market but it is very competitive and any new rewards program will need a clear advantage in order to stand-out. For example, Citi just launched a suite of new ThankYou Rewards cards which offer a 15% discount on travel booked through a partner and no foreign transaction fees. These additional features are necessary to differentiate this card from the competition.
Q: Are you seeing similar trends in the rewards small business space?
A: There are fewer players in the small business space, particularly when it comes to direct mail, so the dynamic is different. However, some trends stand-out such as the promotion of cash-back products from Chase and American Express. The result is a head-to-head between the two issuers that is playing out in this space. You’ll recall, one example from the webinar was a business card from American Express that demonstrated the use of aggressive marketing tactics.
Q: What data is available about the percent of rewards card owners who actually redeem their points?
A: Redeemers tend to be more satisfied and use their cards more often. This means that making it easy to redeem/removing barriers to redemption will have a positive impact.