Consumer Payment Card News

Reward Cards

A new report has found that rewards programs work for consumers but they are expensive to banks. The study says such cards help increase card usage, customer retention and margins, but, they come with a cost to the issuing institution in terms of overall profitability. The research also found that an overall decline in bank cards is signaling the need for banks to evolve their rewards strategies. The study by TowerGroup says general-purpose cards produced 75% of the bank card industry’s sales volume. Yet even with a greater number of solicitations mailed by bank card issuers in 2005, only 0.3% of target consumers responded – yielding the industry’s lowest historic response rate. This downward trend in response rates has increased the cost to acquire new customers. TowerGroup expects that within five years, 90% of consumers holding GPC will have some form of rewards. Yet these rewards undoubtedly place increased financial burdens on the profitability of bank card programs. TowerGroup believes that 2006 marks a transition year for banks in terms of moving from using rewards programs as a tool simply to attract and retain customers, to being more careful in evaluating the effect of rewards on the bottom line as well as how rewards are delivered.

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