By Ray Birch
ST. PETERSBURG, Fla.—A big shift in rewards programs is occurring, according to one payments expert, who says that if credit unions fall behind the trend they could find their plastic shoved to the bottom of wallets.
As CUToday.info has extensively reported, for some time a significant credit card rewards battle has been underway, led by the major issuers and their 2% cash-back deals. But what is also now taking place, asserts Brian Scott, SVP of sales and solutions consulting at PSCU, is that the big banks are making rewards points redeemable almost anywhere—and making it simple to do so at the point of sale.
“This is a big shift,” said Scott. “It used to be that if you had a really cool, robust rewards offer, you were right in the middle of the competitive landscape. Take Starbucks: they have a great rewards program—earn stars and get free coffee.”
But what is also occurring is that the free coffee, free toasters, free travel and free iPads redeemed from points are not flexible enough rewards to meet consumers’ changing demands, Scott said.
Simple Redemption
Brian Scott
“It is really becoming a situation where you have to address that consumers want to use their points to buy whatever they want,” Scott said. “Say I am standing in line at Lowe’s to buy a weed-whacker. Consumers are beginning to say, ‘Hey, I have rewards points I can use them to buy this weed-whacker now.’”
Another development in the market among the major players is they are making it simple to redeem the points at the point of sale.
“Consumers don’t have to go to a website to redeem their points or to specify where they will use them, just pull out their card when they go to pay,” said Scott. “It’s all about redeeming your points at the point of sale for anything you want to buy anywhere, for a portion or for all of the purchase price. This is the new trend.”
Scott says this change strongly influences consumer behavior, and one that is not expensive to manage for the financial institution.
“This truly places your card top of wallet and is a huge differentiator,” he said.
Big Banks Moving
Scott said that the big banks are well aware of this and are making the change to shift more debit transactions to credit. As CUToday.info has reported, the major issuers are also paying more for their programs.
“There is a strong move to shift more transactions to credit,” said Scott. “The interchange is significantly higher and some people will carry a balance. If you move two $100 transactions from debit to credit for each of your 10,000 cardholders each month, that can result in an extra $47,000 in extra monthly income due to the interchange and some people carrying the balance. It’s a huge win.”
Scott acknowledged that he often hears from credit unions that they can’t afford to compete with the big banks’ reward programs.
“But they can, and it’s not as hard as you think,” said Scott. “The more places people can redeem points and the more often they redeem them the better for driving use of your card and loyalty to the credit union. It all becomes a matter of reserving for that point usage up front—expect all those points to be used. It really changes the business model, it makes the rewards program look different and I think more credit unions should do it.”