Rewards are great, but do they buy loyalty or cause attrition when the next great offer comes along? Surveys universally show that cardholders respond well to reward programs, and no one can question the success and excitement of Chase’s Sapphire Reserve but are the programs sustainable. We think not and believe this article in TSYS’s ngenuity captures what card issuers can do to curtail costly reward-wars.
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For consumers, it’s a golden age for credit card rewards. Big bonuses for opening accounts abound. Cards without annual fees are everywhere. And it’s not uncommon to reap two, three and sometimes five points for every dollar spent.
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But can the good times last? For now, yes. Long term…maybe not. The largest issuers are content to spend significantly to acquire new customers, and they have the pockets to do it. But for the rest of financial institutions, prudence in program design might make more sense.
Will service win over reward enticement? We think so. A credit card is a financial tool that eliminates the need to carry cash. It is a service product that enables purchasing across a wide range of payment forms. Here’s how the article sums up the fundamental ways to let the product, not the reward, lead the charge:
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Build a sustainable offer:“It’s important to have a well-constructed offer,” Riley says. “You really can’t give away the bank at the end of the day. You have to be practical. How do you protect that long-term relationship?”
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Cross-sell:“It’s crucial to think about how your issuing base is being leveraged across your broader bank’s core product base,” Boyer says. “You have to think about it more holistically than just ‘How rich is your earn?'”
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Emphasize consistency:“Make sure you are consistent, cohesive and seamless across channels,” Boyer says. “Make it as simple as possible and friction free for digital.” Ease of access from other accounts with the institution is also important.
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Engage customers: Issuers are now using technology to increase the amount of communication between cardholders and banks. It could be as simple as letting customers know their accounts are being watched for fraud, with alert options via email and text. “Continue to offer not so much incentives, but opportunities,” says Kevin Morrison, a senior analyst at Aite Group. “Cardholders want to see effectiveness in their communication.”
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Integrate instant rewards: Providing instant rewards at the point of sale will also help retention, Boyer notes. Instant rewards are still in their infancy, but will likely become more commonplace over the next few years. “Go to where they are interacting — how they want and when they want,” he says. “Sustainability involves freeing up points for the customer.”
When you think about rewards, put on your consumer hat. Would you shift your issuer for a $500 (or $1,000) incentive? Would you stay if year 2 required a $500 annual fee with no incremental bonus? Does it cause angst for you to take your 760 FICO Score to another bank? What do you do when the “next big deal” arrives.
As they say, if you want loyalty, buy a dog. Other than that, excellent servicing spawns account retention.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group