Trying to lure back customers in a post-recession, post-reform world, card issuers are testing programs that offer more flexible rewards.
Citi says the program is the first of its kind by any U.S. card issuer. It started offering a second card last week to selected members of American Airlines’ frequent flier program who hold Citi AAdvantage Visa, MasterCard or American Express cards.
The test program comes as card issuers are increasingly trying to innovate to set themselves apart from competitors in a post-recession, post credit card reform law world where there are many options for accumulating and redeeming rewards.
Citi says the program gives customers more control over how they use credit. For instance, a consumer could use the American Express version of the Citi AAdvantage card at Costco, which doesn’t accept Visa or MasterCard, and then use the Visa or MasterCard version at a retailer that doesn’t take American Express — and have both charges reflected on the same billing statement.
“In talking to our customers, what we heard from them is they really like the ability to add a new card to their wallet,” said Terry O’Neil, Citi’s executive vice president of North American cards. “What they don’t like is having a new credit line or an additional statement.”
However, while it operates on another network, the second card won’t seem entirely new because it will offer the same terms and rewards as the initial card: one frequent flier mile per $1 spent, redeemable for American Airlines tickets and other items. The second card will maintain the existing card’s annual percentage rate, card number and credit line, and there’s no additional annual fee. Citi is offering a 20 percent rewards bonus on charges on the new card for 12 months, subject to existing caps.
Citi is offering the second card to an undisclosed number of customers. If the test goes well, it could expand the program to other cards.
Cards sprout flexible features
More card issuers are seeking to give cardholders flexibility and control as they attempt to distinguish themselves. Capital One, Discover, Citi and American Express have all unveiled efforts in the last year and a half to allow customers to personalize cards based on their needs and interests.
Airline rewards have come under particular pressure in recent years, as other kinds of rewards such as cash back and merchandise have proliferated and as consumers increasingly perceive that airlines restrict the availability of free tickets. On Tuesday, Chase launched two new Southwest Airlines Rapid Rewards Visa cards, coinciding with an overhaul of the airline’s frequent flier program that eliminated blackout dates and seat restrictions.
Kelly Hlavinka, managing partner of Cincinnati-based loyalty research firm Colloquy, says attempts to increase consumer choices are important, because the average American belongs to 14 different loyalty programs.
Hlavinka credits Citi’s effort at making its new program “seamless and automatic for the customer,” because it has consolidated statements and appears easy to manage, with no downsides such as additional fees or negative effects on credit ratings. She says offering a consolidated billing statement sounds similar to what the company has done with its ThankYou Rewards program, which allows consumers to accumulate rewards points in one rewards account by using different cards and other financial products.
But because the additional card is similar to the original, she wonders if the offer is compelling enough to keep customers from adding cards from competitors.
She says consumers can expect more innovation from card companies in the months ahead.
“If you think about the amount of competition, where so many companies are vying for customers, making sure that your rewards program is as rewarding and convenient as possible is critical in this environment,” she says.