FIRM: MasterCard

CEO: Robert Selander

INNOVATION: Pay With Rewards enables cardholders to spending rewards as payments at most merchants

WHAT'S THE POINT(S)? Consumers use points similarly to cash, which allows near real-time loyalty benefits


Payments executives like tothrow around the "real-time" label to describe their latest technology for redeeming rewards and incentives. And while the industry hasn't quite achieved seamless, real-time redemption functionality, market watchers agree MasterCard Inc.'s innovative Pay with Rewards platform comes pretty close.

Debit and credit card holders who opt into the incentives program, announced in early May, will be able spend the points they earn as cash and apply it directly to purchases they make at most merchants.

To make the program work, MasterCard's plan is for issuers to distribute a separate card to participants that will store the cash value of the points. The separate card will look and act like any other MasterCard debit or credit card but will only access a person's points value.

The system works with existing MasterCard rewards programs and gives cardholders an alternative to using accrued points to buy gift cards, airline tickets and other wares through an online catalogue.

"They're literally making the purchase with their points," Josh Peirez, the group executive of innovative platforms, said in an April interview. "The consumer just takes that plastic out and uses that plastic. It looks like any other MasterCard card."

MasterCard, which has developed a number of new payments products the past couple of years and has established a research "lab" to develop further solutions, certainly faces challenges in attracting issuers and getting cardholders to use the program, the biggest of which may be convincing consumers to carry a separate card. But analysts say the approach offers a compelling alternative to other attempts at real-time redemption, which often involve receiving credits on a card statement after making a purchase.

"The consumer is not really aware of the discount benefit unless you peruse your statement carefully and see the discount," said Bill McCracken, chief executive of Synergistics Research Corp. in Atlanta. "The retailer is losing out on the benefit of this partnership with the card issuer to draw more people to their store."

That approach also lacks strong reinforcement for consumers that reminds them "I need to use this card more and I need to use it at this particular retailer," McCracken added. "I think MasterCard is trying to address that downside."

A key to the program's success will be to establish a points conversion ratio that cardholders deem valuable, which ultimately will be up to MasterCard's issuers to decide.

"The oh-wow factor of being able to use it is great," said Brian Riley, research director for TowerGroup's bank cards practice. "Making sure you can convert it to some meaningful savings" is a separate challenge.

If MasterCard and its issuers are successful, the program could help attract new cardholders and drive usage of existing debit and credit cards, helping generate higher interchange revenue.

No banks had signed on to participate in the program as of early May, but Peirez said several issuers have expressed interest in offering the capability to their customers in the fourth quarter.

MasterCard also is exploring ways to tie the ability to redeem points as cash to its debit and credit cards so a separate points card would not be necessary in the future, he said.

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