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Is It Time for Credit Card Companies to Innovate?

Is It Time for Credit Card Companies to Innovate?

By    |   Wednesday, 22 August 2018 03:50 PM

The experience is familiar to many American consumers: Use a credit card and get perks in return. In fact, credit card rewards are so popular that about 86% of Americans said their card had some sort of rewards program.

Yet most of the time, these perks come in one of two forms: cash back or travel/hospitality rewards. The majority—55%—of customers redeem their credit card rewards for cash. Other familiar credit card rewards programs include hotel discounts, airline miles and even gift card rewards.

If the litany of common credit card reward programs seems familiar and even uninspiring, that may be a problem. Rewards satisfaction is higher among consumers who redeem rewards more frequently. It's possible that those consumers who don't frequently use these types of rewards have become bored with the programs altogether. Is it time for credit card companies to get creative—and to innovate?

Successful Examples of Credit Card Innovation

Credit card rewards that make the prospect of shopping even more enticing to consumers could potentially spice up the modus operandi. For example, Citi offers a credit card with a "4th Night" option—by specifically triggering a hotel benefit, customers can then receive a complimentary 4th night stay at any hotel of choice after booking a minimum four consecutive nights. Not only is this a unique perk, but it can be highly valuable to travelers.

Universal rewards like cash back can help people with everyday purchases from gasoline to groceries. But credit card companies looking to innovate might want to get more specific about the rewards they offer—and how those rewards might be triggered. The Citi Prestige is a fine example of this kind of rewards program, even offering free rounds of golf to golf fans. However, as that benefit was done away with, it only serves to highlight the lack of unique and effective incentives in credit card rewards programs.

Ideas for Credit Card Rewards that Engage More Consumers

What sort of outside-the-box ideas might freshen up the industry? It may require looking to individualized segments to identify the people who wouldn't otherwise be enthused by credit card rewards programs:

  • Budget and incentive rewards. For the budget-minded, credit cards often have a poor reputation. The availability of credit provides them with a temptation to go over their allotted spending for the year. But credit cards that offer rewards to customers who meet a predetermined spending allotment could reinvigorate the way many people use these cards.
  • Sports rewards. Popular sports like the NBA continue to receive high ratings and consumer demand, not to mention user engagement. Although companies like Visa use powerful advertising relationships to access new customers, sports-related rewards—redeemable with team-specific merchandise or events tickets—could tap into individualized segments of this market.
  • Localized credit card rewards. Many credit card companies like to offer travel and hospitality programs with broad access across the world. But what if a credit card rewarded city loyalty, expanding its redeemable rewards to create specialized offers for local metropolitan area events and deals? Chase's Seaport Summer 2018 program is one such example.
  • Charitable rewards. Some credit card rewards programs allow for charitable donations from rewards, including some that go to help animal programs or even help fund school supplies and books. The expansion of such programs would be a welcome sight to people who enjoy contributing to a greater cause.
  • Seasonal rewards. The specificity of rewards programs doesn't have to be limited to purchase type. It can also work within the time of the purchase. Typically, most credit cards offer special incentives for the first three months of shopping after signing up to a new credit card. But customers who want to save on seasonal shopping—such as shopping during the holiday season—might be incentivized to keep a credit card all year long.

Understanding Credit Card Reward Program Popularity

Ultimately, most credit card companies are happy to innovate if they believe their innovations will be met by market demand. But do customers always demand these unique credit card rewards programs—or are they perfectly happy to ride out their current programs?

The statistics can be surprising. As many as 31% of credit card holders are not redeeming their rewards. If credit card companies want to inspire more shopping, incentivize more sign-ups and increase rewards satisfaction, they might have to start thinking outside of the box.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.

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As many as 31% of credit card holders are not redeeming their rewards. If credit card companies want to inspire more shopping, incentivize more sign-ups and increase rewards satisfaction, they might have to start thinking outside of the box.
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Wednesday, 22 August 2018 03:50 PM
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