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Consumers are shying away from redeeming such discretionary credit and debit card rewards as travel and electronics equipment. Instead, economic conditions are forcing many to save and use points for everyday items and cash and to pay down debt, observers say.
Consumers started shifting their reward preferences to such items as household goods during last year's third quarter, Citigroup Inc. and Capital One Financial Corp. executives tell ATM&Debit News. For Citi, the shift also coincided with additional rewards through a partnership with Amazon.com.
"The partnership enabled us to offer millions of rewards to our customers at low point prices (1,000 to 2,000 points)," says Nancy Gordon, Citi executive vice for the ThankYou rewards program. Besides books, Citi offers through Amazon such home goods as a mixing bowl (1,800 points) and a pet feeding bowl (1,400 points).
Citi introduced the ThankYou rewards in 2004 to help reduce overall customer attrition, Gordon said last year at SourceMedia's ATM, Debit & Prepaid Forum. Citi research has found that cardholders who belong to its rewards program spend more and help the bank earn higher interchange revenues than customers who have not signed up. Customers earn points for each credit and debit transaction they conduct.
Among the various types of card-based rewards, travel redemption appears to have taken the biggest hit. "Travel is out of vogue," says Mark Johnson, president and CEO of Cincinnati-based Loyalty 360, an association that promotes incentives and rewards.
Before the recession, consumers routinely hoarded their points to save for a big trip, says Gordon.
Despite the consumer shift to more-practical rewards, travel rewards will not become obsolete, Johnson says.
That would be good news for SunTrust Banks Inc., which earlier this month introduced a cobranded Delta Air Lines Visa check card, which will enable holders to earn Delta miles on all signature-debit purchases. "For us, it's an opportunity to attract new [customers] to the bank," Hugh Gallagher, SunTrust senior vice president for deposit product management, tells ATM&Debit News. "We believe that travel-related rewards still have significant appeal to a specific client set and wanted to offer the richest alternative for debit travel rewards.
The SunTrust SkyMiles Check Card will be available in three varieties: Two for consumers (classic and platinum) and one for small and midsize businesses. Classic cardholders earn one mile for every $2 spent with the card and 2,500 bonus miles for their first purchase. The annual card fee is $20. Miles are the only reward available on the card.
Platinum and business cardholders earn one mile per $1 spent, 5,000 bonus miles for their first purchase and a complimentary Delta Sky Club day pass. The annual fee for those cards is $55. Existing SunTrust checking-account customers can upgrade to the SkyMiles card. This will be the first time Delta has offered miles through a debit card. Delta has a cobranded credit card agreement with American Express Co.
The partnership between SunTrust and Delta makes sense for two companies that share many customers, Gallagher says. Both have a strong presence in the Southeast and in the Washington, D.C., area.
"It was a pretty good matchup between the organizations in terms of their [Delta miles] members and our customers," Gallagher says.
It may take some time, but Johnson expects travel rewards to make a big rebound once the economy picks up. "But it won't pick up as quickly as some people would like," he says.
Until the economy revives, consumers will continue to redeem points for more-practical rewards such as discounts on mortgages and student-loan payments, which are found in Citi's program, Gordon says. For example, student-loan payments had a 52% increase in redemption in the first quarter of 2009 compared with the same period last year. Citi customers can redeem a mortgage credit to any financial institution, she adds.
"We were surprised of redemptions [for mortgage and student-loan payments] at the $750 (93,900 points) and $1,000 (125,200 points)-value level," Gordon says. Citi declined to release how many customers redeemed this reward.
Capital One has experienced similar shifts in consumer behavior, according to Diana Don, a company spokesperson. Travel remains a dominant redemption choice for Capital One rewards members, but the bank has seen an increase in merchandise redemptions since the fourth quarter of 2008. Capital One declined to release specific data.
"Key areas of growth we've seen are cash and gift card redemptions," Don writes in an e-mail message to ATM&Debit News.
This holiday season may reveal a lot about how consumers view rewards in tough economic conditions, Gordon says. "It will be interesting to see if consumers use the rewards for gift-giving or keep them for themselves," she says. ATM
