Inching Toward Real-Time Rewards in the U.S.
For the past decade, card issuers and retailers have sought ways to increase the ubiquity of their rewards schemes and cater to consumers’ mounting desire for instant gratification. Increasing competition in the rewards space coupled with advancements in technology is prompting progress toward delivering value to customers on demand. In the context of the current credit card market, a real-time rewards construct allows a customer to redeem value at the time of purchase based on past earning activity.
Relative to on-demand business models such as Uber, Square, and others, credit card rewards programs are in the early stages of disruption. In part, the lack of true real-time rewards schemes can be attributed to the fragmented state of the U.S. payments market generally. While many financial institutions, merchants, and networks have explored this space, most have only invested in programs that drive value to their own organizations. There have been pockets of success within closed-loop ecosystems particularly in retail, but there are few examples of any one institution achieving meaningful scale. However, the expanding digitalization of commercial interactions allows card issuers and retailers to continue to improve the customer experience and create incremental value for all participants.
Real-Time Rewards Evolution
Over the last decade, U.S. issuers have made several attempts to institute real-time rewards. The first several iterations required customers to initiate a redemption and pre-load value to a payment product prior to the point-of-sale experience. Providers generally relied on two forms of prepaid value: digital closed-loop gift cards, or eCerts, and open-loop prepaid cards. While the pre-redemption worked from a technical perspective, the process was cumbersome for a consumer, fraught with complex customer service issues, and highly susceptible to fraud. To make the process more seamless, several financial institutions allowed customers to apply value directly to past purchases. Capital One, for example, allows customers to apply points retroactively to a purchase at a given conversion rate. Other financial institutions have implemented similar capabilities, or at least modernized the legacy statement credit process. For example, by the end of January, Discover expects to rollout a Pay with Cashback functionality, which will offer customers the ability to pay their monthly card bill using their cashback bonus seamlessly online and through the Discover mobile application.
More recently, issuers have focused on leveraging technology and partnerships to deliver an enhanced customer experience. In 2010, Citi and Dynamics piloted a dual-purpose card with the technology to allow consumers to make a traditional purchase, or to automatically redeem ThankYou points by pushing a button on the card. Selecting to use rewards would pre-authorize a prepaid account, convert the required ThankYou points, and settle the transaction with the merchant. The card concept was novel, but the program was never rolled out on a national basis.
During this same time, point transfer programs began to proliferate within the major rewards programs – Ultimate Rewards, Membership Rewards, and ThankYou. Following these forays, issuers began partnering with certain merchants to expand their program’s coverage. Citi and American Express have partnerships with Best Buy, Walmart, and Amazon.com, among others that allow customers to pay with points online and in some cases pick up their items in store. More recently, American Express has forged relationships with specific merchants, such as McDonalds and Uber, to allow for a true pay-with-points option as part of the point-of-sale experience.
While many of these pay-with-points and point transfer schemes exist, issuers and merchants continue to look for ways to bring instant value to consumers on a larger scale.
The Expansion of Merchant Programs
Unlike financial institutions, it has been less challenging for merchants to offer real-time rewards, since generally, they only have had to solve for the complexities of their own channels and POS environments. Over the past several years, many merchants have integrated instant rewards into their proprietary POS systems and mobile applications. For example, Nordstrom, Gap, Starbucks, Panera, BP and others are able to look up and apply a customer’s rewards once that customer has been identified. For years, Cabela’s customers have been able to redeem CLUB points in-store, online and over the phone upon presenting their CLUB Rewards numbers. In the fuel space, BP was one of the first in 2010 to deliver rollback technology that awards instant cents-off-per-gallon savings at the pump, based on a customer’s prior purchases. While coalitions and partnerships are changing the integration points and increasing the complexity of merchant-sponsored instant rewards schemes, merchants have been among the first to identify the value of linking consumer benefits via loyalty programs and rewards as a means of driving adoption of digital interfaces.
The Future of Real-Time Programs
Now that consumers are beginning to embrace a digital experience, organizations are starting to develop distinctive customer and merchant experiences in which goods, services, payments, benefits in the form of offers or loyalty programs, and insights are intimately linked. Issuers are experimenting with real-time rewards in a number of different ways. Earlier this year, Wells Fargo integrated its rewards platform with its ATM network, allowing customers to redeem points for cash in $20 increments and recently, BBVA launched an “instant” cash back experience on the heels of its mobile wallet roll out. The new feature notifies cardholders of their cash-back balances upon using their BBVA credit cards and allows them to redeem their rewards by replying back to the message.
Similarly, Chase has heavily invested in its mobile application and became one of the first financial institutions to implement a true POS redemption scheme with roughly 30 merchants as redemption partners. Combined with the recent ChasePay announcement, Chase has positioned itself to drive value across each stakeholder in the payment process: financial institution, merchant and consumer.
Real-time rewards schemes are powerful because they increase the ubiquity of the underlying loyalty currency, create a frictionless customer experience from sourcing/shopping through to payment, and generate actionable data from consumers and merchants alike. Moreover, rewards and loyalty programs represent a significant opportunity to entice consumers to adopt mobile payments. While the infrastructure must be in place and the tipping point may not occur until customers become more comfortable with mobile interactions, the move toward real-time rewards demonstrates meaningful progress toward enhanced digital commerce that creates value for all participants.
For more information, please contact Katherine Siegrist, Manager, firstname.lastname@example.org, specializing in Credit Card Issuing.
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