U.S. card issuers continually modify their rewards programs to meet consumer demands in hopes of recruiting or retaining customers. In one of the more unusual moves, American Express Co. this week announced that participants in its Membership Rewards program may use their points to pay taxes.
Through its partnership with Official Payments Corp. and Pay1040, which process tax payments for government agencies online, AmEx cardholders can apply reward points towards federal, state and local income tax payments. The can apply $1 for every 200 points redeemed toward a tax payment, according to an AmEx spokesperson.
Enabling cardholders to pay taxes with reward points is an expanded feature of the two partnerships. They initially enabled AmEx cardholders to use reward points to pay tax-preparation convenience fees on the companies’ Web sites, the spokesperson says, noting cardholders asked AmEx to add the feature.
“We know that cardmembers want a rewards program that offers everything from practical and everyday rewards to the extraordinary,” Lynne Biggar, AmEx senior vice president of Membership Rewards marketing and partnerships, said in a statement. “In 2010, we will continue to provide the reward options that our cardmembers want and are focusing on making them more relevant and attainable.
Though the tax-payment option is innovative, it may take some convincing to get cardholders to use the redemption feature, says Ron Shevlin, senior analyst at Boston-based Aite Group. “This will likely take some marketing and cardholder education and communication to drive usage,” he says.
AmEx says it will include marketing for this feature as part of the regular marketing it does for the rewards program.
Shevlin is skeptical of the actual payoff of using points to pay taxes compared with other redemption options. “I would tend to believe that many cardholders will balk at using their points to pay their tax bill,” he says. “Giving money to the IRS is not most people’s idea of a ‘reward.’”
Consumers get rewards-based cards because they want use their points for travel, merchandise or to get cash back, Shevlin notes. “Getting the money back first, and then paying the IRS, is probably more acceptable to people than having it go directly to the IRS,” he says.
Despite the redemption rate, some analysts say adding points redemption for tax payments is smart. "Consumers (even affluent ones) have less disposable income than in the past and some consumers may be looking for a way to take some of the pain away from paying their tax bill," says Megan Bramlette, managing associate with Auriemma Consulting Group. "In that respect, I think this was a good move by AmEx."
