Reward credit cards grow in popularity
Reward credit cards are increasing in popularity, not just with the consumers who use them, but also with the credit card companies that market them.
From the credit card industry’s standpoint, reward credit cards are a successful way to attract new cardholders in a nation where everyone already seems to have several credit cards. In 2005, a record high 6.06 billion offers were mailed out by credit card companies, but only a record low 18 million offers, or about 0.3 percent, were accepted. Realizing that they need better incentives to attract cardholders, credit card companies are improving more of their offers with the promise of rebates or rewards.
The idea of a reward credit card began in the mid-1980s when Discover made the offer of cash back on every purchase. That was followed by American Airlines joining forces with Visa to offer a frequent-flier mile for every dollar a cardholder spent. Credit card issuers have been creating variations on the rewards concept ever since. A typical reward credit card today offers about a penny back for every dollar spent, in the form of cash, goods, or services, with the goal of increasing both spending and loyalty.
Due to the success of rewards credit cards, competition has increased. In 2001, less than a quarter of credit card offers included the promise of a rewards program. But by 2005, the share was 58 percent, according to Mail Monitor, a unit of consumer research company Synovate. And at any given moment, some credit card company is usually offering rewards valued at several pennies on the dollar.
Rewards are not the only way the industry has attempted to drive spending and loyalty. Other techniques have included ranking credit cards with the names of precious metals, with a platinum or gold credit card suggesting that the company’s customers were elite or special. But as it became apparent that many people (some less special) were also getting gold cards, the concept lost a bit of its appeal. However, Americans continue to show interest in precious metal credit cards, so the trend may continue well into the future.
The aggressive marketing continues for so-called “affinity cards,” which feature the image of something a consumer loves such as a sports team, a university, or even a picture of the family pet. These affinity credit cards are popular with consumers, but are even more popular when they are linked with rewards programs. Studies indicate that people care more about a credit card’s rewards than about the interest rate, the credit limit, or any other feature, with Synovate noting that rewards are the single most important selling point for a credit card.
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