Consumers not alone in loving rewards credit cards
By Ben Woolsey
The New York Times recently reported that the benefits of reward credit cards are not entirely for the consumer. Credit card issuers have found that cardholders put approximately 75 percent of their spending on a single reward credit card, rather than spreading it among many credit cards.
In fact, credit card issuers have found that while annual spending on a regular Visa card averages $5,200 per year, spending jumps to an average of $26,100 for a rewards credit card.
This type of spending concentration can be a gold mine for the credit card issuers who can attract and retain cardholders with reward programs. Even though reward credit card customers tend to pay off their card balances more frequently than those without rewards, the interchange income alone is very profitable. Interchange refers to the fees charged to merchants for accepting credit cards and is split between Visa or MasterCard and the issuing bank.
While it appears that low interest rates are the favorite advertising message for credit card issuers, it may be rewards that are driving the most business and profits. Perhaps this is a classic example of a win/win situation for everyone involved.
Published: May 10, 2006
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