By 2011, all major credit card issuers in the United Kingdom will offer at least one fee-based rewards credit card to appease consumers wanting more value from their cards, new research from Auriemma Consulting Group suggests.
Auriemma Consulting Group based the findings on the results of an online survey of 544 credit cardholders the company conducted in April.
Fee-based rewards cards tend to impose a monthly fee to support better benefits for the cardholder. For example, UK-based retailer Marks and Spencer PLC charges a monthly fee of 10 British pounds (US$15 or 12 euros) for its Premium Club credit card. Benefits cardholders earn include triple points on Marks & Spencer purchases both in-store and online, complimentary multifamily travel insurance, and free coffee or tea at the store’s café.
A monthly fee seemed to appeal to most consumers, as 80% of survey participants said they would cancel their rewards card if it had an annual fee of 25 pounds (US$37 or 29 euros) or higher. Ironically, respondents seemed more willing to pay a monthly fee than an annual fee, even if the monthly fee would create a greater overall expense, Matt Simester, director of Auriemma in the UK, tells PaymentsSource.
In all, 57% of survey participants said they had a rewards-based credit card, up from 48% who did in 2007, and 33% of respondents assigned “high value” to points-based reward cards because such programs give them tangible offerings, such as products or coupons. Issuers usually link point-based cards to day-to-day savings, such as for grocery purchases, which are tangible products, Simester says.
Point-based cards also were the most prevalent rewards type and had the second-highest perceived value, with 77% of respondents noting such cards have high or moderate value because cardholders can redeem points for merchandise, travel or statement credits.
Moreover, point-based cards are preferred because they “present consumers with more achievable and flexible redemption options,” the New York-based management-consulting firm states in the report.
Survey respondents gave cash-back cards and cards offering discounts on petroleum the highest perceived value because of the tangible reward element, but such cards are less prevalent today. Only 1% of survey participants said they had a free or discounted petroleum rewards card, down from 5% who did in 2007, the report notes.
Access to petroleum discount cards is more limited, possibly because CitiFinancial Europe PLC recently sold its card portfolio, which included Shell-branded cards, to SAV Credit Ltd. and CC Asset Management Ltd., Simester says. Shell Oil Products was one of the only companies to offer a card with a discounted petroleum program in the UK, and the program was dropped when CitiFinancial sold the portfolio.
When choosing a card to pay for purchases, 51% of respondents said they tended to pick based on reward type, up from 40% who said so in 2007, possibly because an uncertain economy is causing consumers to choose the card with the best perceived value to meet their needs, according to Auriemma. However, 22% of cardholders never have actually redeemed their rewards.
UK credit card companies also are facing income challenges, and they are learning to work within the new cardholder rights recently put into law (
Subsequently, some card companies mostly likely will begin charging for services and benefits to maintain an income stream, Megan Bramlette, Auriemma managing associate, notes in a news release. PaymentsSource was unable to reach Bramlette for an interview.
As fee-based reward cards become more prevalent, issuers should ensure their products offer consumers significant value, Bramlette states in the release. “The consumers who continue to use credit cards will come to expect high-value products, and failing to offer such a product will result in a rapidly decreasing market share,” she concludes.
