Over the years, payment reward programs have proven highly successful, with consumers embracing well-designed programs. Issuers have proven that they can increase preference, drive purchase activity, and create âtop of walletâ status for their cards via loyalty programs. TowerGroup estimates that reward programs are a factor in nearly 70 percent of all transactions in todayâs U.S. card industry.
Yet as more Americans experience a loss of confidence in the economy, reduction in household wealth, and shakier employment status, TowerGroup advises issuers to ensure that loyalty programs not only cause consumers to aspire to potential benefits (e.g., a high-end vacation), but also inspire them to keep their credit in good standing. TowerGroup suggests that issuers consider using card rewards to improve credit management, in lieu of such aspirational rewards as trips to Hawaii and luxury goods â which can be less meaningful and even have the potential to antagonize when dollars are tight. This approach would include rewards options such as cash-based credits that can be applied to open balances, stimulating good consumer credit behavior and motivating consumers to pay down their balances.
TowerGroup believes that reward card issuers will be impacted by four significant consumer trends in 2008: credit quality deterioration; revenue pressure; fragile economy; and vulnerable consumers.
The TowerGroup ViewPoint titled âPointing in the Right Direction: Rethinking Card Payment Rewards in a Challenged Economyâ by Brian Riley, senior research analyst in the Bank Cards practice at TowerGroup, examines existing reward and loyalty programs and explores how credit card issuers may rework their programs to inspire customers to maintain the terms of their accounts.