MasterCard Inc.'s new rewards program is a step closer to the industry's goal of real-time redemption.

Pay with Rewards, announced Monday, allows cardholders to convert points into cash credits that can be applied when they make purchases at almost any merchant.

Analysts said MasterCard's approach could sidestep some of the barriers associated with current real-time redemption methods, which typically appear as credits on customers' monthly statements.

However, the Purchase, N.Y., payments company will face its own challenges, especially in persuading people to carry a special card used only for accessing earned points.

The main advantage of Pay with Rewards, executives said, is that it simplifies the process of redeeming points.

"The more immediate gratification you can get" as a consumer, the "more successful rewards program" you'll have, Dana Lorberg, MasterCard's group executive of technology and business integration, said in an interview Friday.

With Pay with Rewards, cardholders earn points when they make purchases with any enrolled MasterCard rewards card. The points can be redeemed as cash credits that are applied when people make purchases at any merchant that accepts MasterCard cards.

Issuers will distribute to customers who opt in to the program a separate card that can be used to access the credits they have earned. This new card will be linked to a cardholder's bank account or credit line, but cannot access any of those funds, said Josh Peirez, the group executive for innovative platforms at MasterCard.

Instead, this new card functions more like a prepaid card and can be used only to spend the cash credits people have already earned.

MasterCard keeps track of participants' accumulated points. Redemption transactions are calculated instantly at the point of sale, and are applied immediately to the purchase price.

"They're literally making the purchase with their points," Peirez said in an interview Friday, adding: "The consumer just takes that plastic out and uses that plastic. It looks like any other MasterCard card."

Peirez said he expects some issuers will begin distributing the rewards cards in the fourth quarter.

Other companies are trying to deliver faster redemption features. One common method offers discounts that are applied as statement credits.

Another common method sends cardholders discount offers for a specific retailer or product, sometimes as a text message or through a mobile phone application; these offers can be triggered when people are near certain retailers, or by making other purchases.

The problem with such methods is there is not always immediate reinforcement for the cardholder "saying, 'I need to use this card more, and I need to use it at this particular retailer,' " said Bill McCracken, chief executive of Synergistics Research Corp. in Atlanta.

However, MasterCard's approach also has its flaws. The downside is cardholders "have to do something" to redeem the value of their points, McCracken said. Some people may be reluctant to carry another card, or they might forget to use it.

Rob Reeg, MasterCard's president of global technology and operations, said the payments industry has struggled to find the best approach for delivering real-time redemption capabilites because of "the complexity at the point of sale."

He said the Pay with Rewards approach is a step forward because consumers are already familiar with the process of carrying and using payment cards.

However, Peirez acknowledged that the idea of using a second card during transactions might not appeal to some people, and said that MasterCard is considering ways to link the Pay with Rewards cards to consumers' existing debit or credit cards, a move that would eliminate the need for carrying a separate card.

Cardholders can apply the credits toward their purchases, and pay the balance with cash or another credit or debit card, though in these cases he said merchants must be able to handle split-tender transactions.

Issuers will establish their own rewards programs, so the redemption value of each point could vary between banks. However, individual cardholders will be able to redeem earned points for the same value at any merchant. (With some existing rewards programs, the number of points needed to earn credits can vary between merchants.)

"That's going to be a bank-specific decision," Peirez said.

He said several issuers have expressed interest in the program, but none have officially agreed to sign on yet. Several major issuers declined to discuss the program, including JPMorgan Chase & Co., Citigroup Inc. and TD Bank.

Peirez said MasterCard's approach will give cardholders more flexibility to decide how to use their rewards and could come in handy for people who are trying to save their money.

"We know that times are tough," he said. "We know people are looking for ways they can manage and save their money."

Brian Riley, research director for TowerGroup's bank-card practice, said requiring people to use a separate card could prove to be a cumbersome effort for some cardholders.

"Wallet space is something that's always cherished in the industry," Riley said.

He said that a key factor in convincing people to carry an extra card would be the points conversion ratio offered by issuers.

"The oh-wow factor of being able to use it is great," Riley said. "Making sure you can convert it to some meaningful savings" is a separate challenge.

Manhattan resident James O'Brien said he likes the idea of receiving immediate credits when making purchases, but agreed that whether he would use such a program "depends upon" the amount of cash he would be able to earn per point.

He recently redeemed about 385,000 points he accrued using his American Express Co. Platinum card to buy a 46-inch flat-screen television set advertised in a rewards catalog he received. O'Brien, 64, estimated that it took him five or six years of spending with the card to earn those points.

Emily Aronson, a Manhattan resident who uses a Capital One Financial Corp. No Hassle Rewards Visa card as her primary credit card, said she often forgets to use the points she has earned and likes the idea of being able to use them as a form of cash when shopping. She also has a MasterCard credit card, and said that having to carry a separate card to use the points "doesn't bother me at all."

The capability to pay with rewards might entice her to open a MasterCard rewards account "if I were in the market for a new credit card," Aronson, 29, added. "I like to keep my number of credit cards low."

MasterCard already has rolled out the technology supporting the Pay with Rewards system as part of several upgrades to its global card network the company announced Monday.

Other upgrades include faster clearing for gasoling purchases, beefed-up fraud detection during transaction authorization and the addition of bill-pay capability at participating automated teller machines in Asia and Latin America.

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