It seems industry observers are just waiting fora major decline in credit and debit rewards programs, the formerdue to portfolio economic pressures (reduced consumer borrowing,continued high charge-offs, etc.) , and the latter due to decliningdebit revenues under the Durbin Amendment. Whether eliminatedentirely or just devalued, card reward programs are in danger ofcutbacks. But it’s not a bad time to take stock of programeffectiveness, especially when one considers the data.
A new study by Colloquy and marketing technology firm SwiftExchange estimates U.S. consumers build $48 billion of value inloyalty program value each year, but that a third of it goesunredeemed. Mercator’s CustomerMonitor consumer survey datacertainly confirms weakness of consumer engagement on the debitside of card rewards, with just one in four debit rewardsparticipants saying they had ever redeemed rewards from theirprograms. Our survey data shows that a good measure of theengagement gap relates to lack of initial and ongoingcommunications from the bank sponsor of the program -ironic, givenbanks’ investments in some debit rewards programs. Cardholderreactions certainly indicate it’s time for a debit rewards programreview, Durbin Amendment or not!
With credit card rewards, the stakes are higher, driven bycardholder expectations. Over two thirds of credit cardholdersparticipate in rewards programs, and our surveys show an importantsegment is more focused on maximizing their rewards byconcentrating spend on a selected card. And with issuers stillfocused tightly on the prime and superprime segments, few issuerscan afford to let their competitive offers down as everyone battlesfor the same prospects. Our data shows that consumers participatingin credit rewards programs are much more likely to have maintainedor increased their credit card use during the 2009-2010 period.Engagement has its benefits.
In these times of consolidation, it makes sense that consumers needsome incentives to select a new card, or to move a card to top ofwallet. But they also need to be reminded, time and again, whythose were and are good choices.