Credit card providers that haven’t refreshed their rewards program risk losing customers, warns a study of 3,233 U.S. consumers conducted by PYMNTS and i2c, a payments processing company.
While reward points are broadly popular — who doesn’t like free rewards? — consumers want personally relevant offers that are easy to redeem. Younger consumers want a fully digital experience they can access through their phones — no email for them, much less paper coupons.
“Physical mail, once a standard method for such communications, now sees dwindling favor across all age groups,” the study found. Keep it simple and make it fast. The survey showed consumers are unhappy when rewards aren’t spelled out clearly or when claiming them is slow — that may explain why simple cash-back rewards constitute nearly half of all claims.
“Rewards programs with lengthy redemption processes or no personalized offers drive consumers away,” the study concluded. Roughly 31% of consumers said that lengthy redemption procedures were a significant issue. The same percentage said they had experienced friction in redeeming rewards in the past 90 days, with 23% reporting confusing technology, 23% mentioning long redemption processes.
Banks that issue credit cards have experimented with using card reward programs to grow their personal accounts, but with limited success said Dan Hanks, senior vice president for global product management at i2c.
“While there have been some cards that offered higher reward redemption rates if redeemed to bank or investment accounts, they have had limited success. The economics can be difficult and banks have been reluctant to treat their card business as a loss leader for their investment business.”
Higher spending consumers have tended to prefer travel or cash back rewards, he added.
“Travel rewards are still popular as travel has rebounded from the decline during Covid. They still tend to be focused on co-branded cards related to travel (airline, hotel, etc.) with a few exceptions such as Chase Sapphire Preferred, Capital One Venture and Amex Platinum. Travel rewards are still a niche, but one that attracts higher spending customers.”
Smart digital apps could be the way to differentiate and compete.
“Gen Z and millennial consumers have a reputation for being more tech-savvy and valuing efficiency, placing them squarely in conflict with current programs’ operational inefficiencies. Financial institutions need to innovate beyond traditional reward structures to alleviate these concerns, and tailoring reward programs to individual preferences, simplifying the redemption process and improving the clarity of offerings could significantly enhance these users’ satisfaction.
Hanks said banks should take another look at their rewards structure to attract Gen Z and Millennials because young consumers can provide value over the long term.
“The benefit of the lifetime value (LTV) of a loyal customer is something that banks should absolutely consider,” he explained. “Younger card customers tend to be less profitable as they generally have lower credit limits and therefore less spending and revolving capability. As they age, these same customers become the most profitable for a range of bank products. Unfortunately, many banks take a more short-sighted view.”
Some features have changed on cards. Rental car insurance programs, such as collision damage waiver, have disappeared on some card programs, he said.
“Those features were generally provided by the card networks for some higher value cards. Visa removed that a few years back from their Signature cards, for example, replacing it with benefits such as cell phone protection, because they felt that it was rarely utilized and not perceived as a value by many customers.”
The study of consumer sentiment suggests opportunity for new entrants, or existing providers who can tailor their reward programs to evolving consumer preferences.
“While existing loyalty programs attract many users and offer rewards, widespread
friction and dissatisfaction present a significant market opportunity for a solution that smoothly delivers tailored rewards.”
Credit companies are not delivering rewards that Gen Z consumers want — and these young consumers want more than cash-only offers. They are interested in additional cards from entities that offer personalized and diverse rewards. Their preference for ticket access and referral programs is notably higher than the more traditional preferences of baby boomers and seniors, the survey found. The younger consumers are also apt to act on their preferences — the survey data indicates that nearly half of millennials and 43% of Gen Z consumers are highly likely to apply for a new credit card offering their preferred type of reward.
