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What Accounts for the Growing Popularity of Reward Cards?
One of the primary reasons for their increasing appeal is the stiff competition among card issuers, who have to work hard to make their cards stand out in the deluge of offers we receive every year. Tempting us with rewards is one of their best bets for getting us to apply for and use their cards. That’s why their direct-mail campaigns consistently include more sales pitches for reward cards than nonreward cards. For example, according to Mintel Comperemedia, a Chicago-based market research firm, 55% of all credit card direct-mail promos had a reward component in 2007.
These programs have become so popular in the last few years that it’s hard for card issuers to compete in today’s market without a rebate program. Even better from our perspective as cardholders, their competition means increasingly generous rewards for us. I’ve been amazed over the years at how issuers are constantly trying to oneup each other with ever more enticing cards.
A good illustration of how competition has made reward cards more appealing involves rebate percentages. Until a few years ago, reward cards typically offered a 1% cash rebate or 1 reward point for each dollar spent. Now it’s not uncommon to see reward cards offering rebates up to 3% and even up to 5% on certain purchases.
Imagine getting 3% to 5% back just for using a particular piece of plastic. That’s more than we often earn on our savings at the bank! Moreover, we have to pay taxes on the money we earn in our savings account. Not so with card rebates, which are generally tax-free. (Consult your tax advisor for more info.)
This competition is working to our benefit in another way: Issuers are tempting us with more flexible redemption options. Historically, reward cards allowed cardholders to earn only cash rebates, airline tickets, a narrow selection of merchandise, or gift cards. Lenders are now trying to woo us by presenting many more choices in how we can capitalize on our rewards.
Chase’s Freedom Card, introduced in 2007, is a good example. Marketed aggressively through flashy TV ads featuring the hit song “I’m Free” by The Rolling Stones, it gives cardholders a lot of control over their reward choices. They can choose cash rebates, gift certificates, hotel stays, car rentals, travel on most airlines with no blackout dates, and/or a wide array of merchandise.
In their quest to get us to use their cards, lenders will no doubt introduce other reward cards and modify their existing programs to increase flexibility and customer control.
And their popularity will likely grow even more as programs become increasingly specialized and targeted to tempt very specific markets. As Comperemedia puts it:
Credit card reward programs have become more sophisticated and tailored for particular consumers based on their lifestyles, needs, and desires. Thus, affluent cardholders may be offered elite lifestyle experiences such as a Tiffany’s engagement ring or even a trip into space….
Finally, the growth of the Internet has also helped spur Americans’ seemingly insatiable appetite for card rewards. Case in point: On a whim back in 1996, Peter Flur, a research engineer from Charlotte, North Carolina, started an online community called the Grapevine, devoted to card rewards. The Grapevine was simply an expression of Flur’s
personal interest in the subject, but it has since morphed into a popular online community where people discuss reward cards every day. Similarly, the active CardRatings.com forum has thousands of user tips on making the most of reward cards.
Although our love of reward cards is a great thing, as with any love affair, there are some potential pitfalls.