LOMBARD, Ill.—Consumers are now used to getting paid to use issuers’ credit cards, according to new data that shows the vast majority of credit card holders carry plastic that returns rewards.
Research by Raddon Financial Group shows 82% of all credit card users currently participate in some type of credit card rewards program, compared to 63% in 2007.
Cash back is the most popular reward, Raddon noted, as seven out of 10 card owners are qualified for or enrolled in a cash-back rebate program.
“Eight years ago, the most popular type of rewards program was based on reward points,” said Pat Bator, senior market and product development analyst, in the Raddon Report. “With cash-back cards, consumers don’t have to worry about rewards devaluation as they do with points or miles cards, which are more vulnerable to devaluation. At any time, card issuers can change the points or miles needed to redeem rewards.”
According to Raddon, rewards programs have been most effective in increasing monthly credit card spending with two main credit card segments. The first is the high-charge convenience user – credit cardholders who do not carry credit card balances from month-to-month and who charge more than $300 total on their credit cards every month.
“This segment pays off their charges monthly, treating their cards as convenient payment devices,” said Bator.
The second segment is the high-balance roller – credit cardholders who carry more than $3,000 in total balances on their credit cards from month-to-month. Six in 10 of these consumers spend less than $300 monthly on all their credit cards.
“Although rewards program participant satisfaction is high among most credit card segments, it is the highest with the high-charge convenience user,” said Bator. “This segment is satisfied with the type of rewards they are enrolled in and the rewards they receive.”
However, satisfaction is somewhat lower with the high and low balance-roller segments, especially the high-balance roller group, explained Bator. The high-balance roller group presents community-based card issuers with an opportunity to compete with major cards issuers in the rewards program arena.
“The objective of any credit card rewards program is to achieve the ideal balance between incremental earnings (revenues) and incremental redemptions (costs), with the goal of attracting profitable cardholders and generating maximum incremental profits to a program’s sponsor,” said Bator. “To that end, financial institutions must recognize redemption rates are running at high levels.”
Raddon’s research shows 82% of rewards program participants have redeemed their rewards, with redemption rates much higher with high-charge convenience users (91%) and high-balance rollers (86%). The research further reveals rewards program participants prefer to redeem the rewards they earn anytime they want. Such a designed redemption schedule will have a competitive advantage over programs that permit monthly, quarterly, semi-annual or annual redemption set-ups, added Bator.
“Credit card marketing has gone far beyond just competing on interest rates and annual fees. Consumers are accustomed to receiving credit card rewards and redeeming them,” concluded Bator. “They are more focused on rewards than they have ever been, and carefully evaluate the benefits and merits of credit card offers. The downside for card issuers is that they now must continually incent consumers to use their cards. The monster the industry has created must be continually fed.”