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Credit card issuers shift rewards to 'platforms'

Multicard reward programs give consumers more choice, but at a cost

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Before the recession, credit cardholders were happy to accumulate points for just free gas or airline tickets.

Today, however, consumers want to pick and choose where they spend their points, and many issuers are giving them the freedom to do just that. Not your everyday rewards cards

Credit cards are offering membership to more broad-based rewards "platforms" on which consumers have many ways to earn points that can be redeemed for cash or traded in for merchandise in multiple categories (see chart).

"The broader program is for someone who wants a lot of options because it is a lot of things all rolled into one," says Mona L. Hamouly, a spokeswoman with American Express, which offers perhaps the most well-known of these programs, Membership Rewards. You earn points toward free travel as you could with a travel rewards card, and "you can use your points to buy a coffee maker or pay for a hotel stay or get dining gift cards," Hamouly says. "You can use your points for just about anything."

Other card issuers offering broad-based reward platforms are Citi, which steers cardholders into its Thank You program; Discover, which offers its Cashback Bonus program; and the most recent addition to the list, Chase, which introduced its Ultimate Rewards program in June 2009.

Many cards, one platform
One characteristic of the rewards platforms is that card issuers often have multiple credit cards that fall under the platform's umbrella. For example, all of the American Express charge cards and its Blue credit card offer Membership Rewards. Likewise, Chase rolled Ultimate Rewards out to users of its Chase Freedom card and a new "Sapphire" credit card for affluent customers. The company reportedly will link other cards to the program in the future.

By linking multiple credit cards to one rewards platform, card issuers could be taking a step toward cutting costs, says Michael Kon, a senior analyst with global investment research firm Morningstar. "I think what we're seeing is that banks are realizing they don't need so many cards out there and they want to consolidate, and the first step in this consolidation is to put more cards on one platform," he says.

Another benefit of putting multiple cards on one platform is the ability to entice cardholders to use more of the issuer's financial products in order to get more rewards points. For example, Citi not only enrolls credit cardholders into its Thank You program, but it also lets bank users earn points when they use Citi debit cards, as well.

I think what we're seeing is that banks are realizing they don't need so many cards out there and they want to consolidate, and the first step in this consolidation is to put more cards on one platform.

--Michael Kon   
Morningstar   

These broad-based platforms provide more of a rewards-based environment for consumers, such as extensive websites from which customers can redeem points, shop for merchandise and even book travel. Some programs, such as Discover's Cashback Bonus, offer extra rewards points if you shop with partner merchants directly from the rewards site. It's also easier to redeem points for travel at rewards hubs such as Chase's Ultimate Rewards site where users can book their flights, secure hotel rooms and rent cars using a travel booking tool.

Platform drawbacks
Though cardholders may have more options for redeeming rewards points with the broader platform programs, their actual earnings may be less than with cards that offer only one specific type of reward, such as a travel rewards card, says Jim Randel, author of "The Skinny on Credit Cards: How to Master the Credit Card Game." "Our research shows that those folks who have a half dozen cards with each one offering a specific type of reward are going to do better than that person who has one card to try to cover everything," he says.

One reason for this, Randel says, is that rewards cards that cover one category often offer cardholders more points per dollar spent. Also, cardholders might not be rewarded for spending in certain categories all the time because programs frequently rotate the categories that can be redeemed at different parts of the year. For example, Discover's Cashback Bonus program offers cash back on purchases of gas from July through September, while it rewards purchases of groceries from October through December and travel from January through March.

For that reason, consumers who spend a lot of money on a particular category might be better suited looking for a card that focuses rewards there, says Julie Loeger, senior vice president of rewards for Discover. "It's very important for consumers to understand how they like to spend with the credit card versus how we want them to spend. If it's primarily on gas purchases, a gas rewards card is a better option simply because you earn an accelerated reward rate on gas purchases."

If you're trying to determine what rewards platform works best for you, make sure first that you don't carry a balance, warns Randel, because you'll likely pay more in interest than you'll receive through rewards. After that, make sure the categories of available rewards make sense to your individual shopping habits. "If you're going to use one card for everything, make sure it has the breadth of rewards that you're looking for," Randel says.

The chart below summarizes the top four membership rewards platforms, how they work, what you get and the credit cards associated with that program:

Issuer Rewards program How the program works Rewards categories Cards within the program

American Express

Membership Rewards

Earn points for purchases, with extra points awarded for purchases with select partners and for purchases made from select retailers though the Membership Rewards site

Travel, dining, entertainment, babies, beauty, books, electronics, fashion, accessories, gifts, home and garden, jewelry, music, office supplies, sporting goods, toys, videos and wine

Platinum card, Preferred Rewards Gold card, Blue from American Express, Rewards Plus Gold card and American Express Preferred Rewards Green card

Chase

Ultimate Rewards

Earn points for every dollar spent on purchases; earn extra points for booking travel and shopping at merchants on the site; earn extra points for purchases made in rotating categories such as gas and home improvement

Travel, dining, entertainment, electronics, books, toys jewelry, music, movies, department stores

Chase Freedom, Chase Sapphire

Citi

Thank You Network

Get points for all purchases made with Citi credit cards. Get additional points by shopping with select merchants and by booking travel on Expedia.com

Books, music, electronics, home and garden, sporting and outdoor, health and beauty, tools and automotive, toys, green, luxury, gift cards, cash, charities and travel

Citi Forward, Citi Diamond Preferred Rewards Card, Citi PremierPass Card, Citi American Express cards, Citi Platimum Select Card, CitiBusiness Card with Thank You Network and Citi Professional Card with Thank You Network

Discover

CashBack Bonus

Get up to 5 percent cash back on purchases in rotating categories and 1 percent on all other purchases; get between 5 percent and 20 percent cash back by shopping with partner merchants from Discover's ShopDiscover 

Travel, home, fashion, gasoline, theme parks, grocery stores, restaurants, movies

Discover More

Source: CreditCards.com research, conducted July 2009. Rewards program terms are always subject to change. To report an update, write Editors@CreditCards.com.

See related: Comparing value of cash back cards vs. rewards, Finding rewards cards with local customer support, How to decide when to dump your rewards card for another, Where some of the best rewards cards can be found, How credit card rewards can bail you out of debt, Trips and traps of credit card rewards programs

Published: July 29, 2009


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