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Data for today’s episode is provided by Mercator Advisory Group’s report –Credit Card Rewards 2020: Another COVID-19 Victim?.
Cash Back and Flex Rewards Programs Look to Be the Winners in COVID Credit Crunch:
- Although they do share the vulnerabilities of reduced purchase volume and rising credit risk of all credit cards…
- …cash back and flex rewards programs don’t carry the vulnerabilities of annual fees or co-brand sponsor (i.e. airline and travel).
- Most cash back rewards programs are range bound between 1-2%, with most closer to 1%.
- Cash back rewards schemes benefit from two differentiators:
- Bonus categories for rewards add engagement, pushing special offers or alternative categories.
- Consolidated expenditures can be incentivized with a tiered rewards program to spend more with the more rewarding card.
Credit card reward programs, a consumer benefit of using a credit card, will undergo change as consumers and financial institutions adapt to the new world of COVID-19. Credit card issuers that rely on rewards to attract and retain customers must consider the changing economic realities and construct programs that do more than link to weakened co-brand partners, advises Mercator Advisory Group’s latest research report, Credit Card Rewards 2020: Another COVID-19 Victim?.
While many consumers gravitate to cash-back rewards, co-brand programs that feature alliances with airlines, cruises, and hotels leave consumers with points that may not be useful for several years. Rewards with cash options, such as those issued by American Express, Bank of America, Capital One, Chase, Citi, and Discover will find consumers more likely to gravitate toward cash options than rewards that provide options for hospitality and travel.
“Those aspirational trips to Hawaii lost their panache in 2020. So have hotels on South Beach and the south of France,” commented Brian Riley, Director, Credit Advisory Service, at Mercator Advisory Group, the author of the research report. Riley adds that “credit card issuers need to re-gear credit card reward programs. If they do not, they will miss the way the market is moving.”
This report analyzes Mercator Advisory Group’s consumer survey data on credit card rewards and applies a practical view of both the U.S. consumer and shortcomings in current reward programs. With more than 225 million credit cards targeted at hospitality, retail, and travel, card issuers need strategies that appeal to the new normal. “Business is not business as usual today,” commented Riley.