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The tough economy is causing credit card rewards-program momentum to slip, forcing card issuers to seek new ways to stimulate usage and fund rewards, according to a new report from Mercator Advisory Group. In "Credit Cards 2008: Trends, Challenges and the Demand of Innovation," Terry Xie, director of international advisory services for Maynard, Mass.-based Mercator, says credit card rewards programs are losing steam as spending slows and cash-strapped cardholders shift more everyday spending to debit cards to maintain tighter control over their finances. "Credit card issuers relying heavily on rewards programs should look for marketing promotions that will keep consumers interested in these cards through the downturn," Xie tells CardLine. He also notes that as lawmakers continue to look at interchange-fee regulation, card issuers may eventually need to explore new channels for funding rewards programs. "Merchant-funded rewards programs, which have slowly been gaining ground over the last few years, represent enormous growth potential," he says. Independent merchant network operators such as Affinity Solutions, Mall Networks Inc. and My Rewards may benefit as merchants seek help in managing mushrooming point-of-sale rewards programs. More large merchants are also likely to introduce their own rewards programs, Xie says. One example is J.C. Penney Co.'s JCP Rewards, launched in August, which rewards consumers with $10 back on every $125 spent monthly using any credit or debit card, including Penney's proprietary credit card. "As the traditional credit card rewards model changes, card issuers need to dramatically improve their data and analytics to maintain the profitable part of this market," Xie says.
