Turning miles directly into cash gains favor


After years of talking about it, the credit card loyalty program industry is poised to launch several programs where rewards points can be converted into cash.

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Could this be the year we can start spending our frequent flier miles and loyalty rewards like cash?

When American Express Rewards launched “Pay With Points” eight years ago, rewards experts and frequent fliers began predicting that miles would become a spendable currency. The program allowed AmEx rewards holders to spend their points like cash at Yet the phenomenon never expanded beyond American Express rewards and Amazon — until now.

Since mid-2011, you’ve been able to turn miles into PayPal credits on, a popular site for frequent fliers. More recently, another website,, launched with a option to convert points or miles into currency and load them onto a Visa debit card. Other options are on the horizon.

These developments have industry experts saying this may be the year we can all start spending our frequent flier miles and loyalty rewards like cash.

Why now? “I can’t figure it out,” says Randy Petersen of FlyerTalk. “These loyalty programs are 30-some years old and the idea of miles as a currency — I’ve been hearing that for 20 years. There’s been a little movement but no major steps until now. Out of the blue we have major initiatives that are extremely well-funded. Something’s going on.”

One thing is clear. Most people find it easier to earn rewards than to spend them. Industry studies show about 60 percent of cards have a rewards component, and they account for $4 of every $5 spent on credit. Yet, only two-thirds of all rewards earned in 2010 were actually redeemed, indicating that rewards are a lot easier to earn than spend.

While plane fare can be purchased for as little as 12,500 points one way, for example, the average amount spent on domestic plane fare is closer to 50,000. Unless you’re a serious frequent flier, it takes a while to amass that kind of reward pile.

Rewards: Get ’em, spend ’em

Rather than waiting for enough points to purchase a flight or hotel stay, wouldn’t it be nice to spend them as they accrue? Several business ventures are gambling that consumers are ready for just that.

In 2011, became the first to introduce the option of converting rewards into PayPal credits. Originally launched 10 years ago, is a site where you can track, redeem and swap miles and points from more than 100 loyalty programs, including American Express Membership Rewards, Aeroplan, American Airlines AAdvantage, Airmiles, Delta SkyMiles, Priority Club Rewards and US Airways Dividend Miles. When you register and plug in your loyalty account information, the site keeps a running tally of the points in each of your accounts. It’s free to register, but fees are deducted for transactions.

More recently, Zurich-based Loylogic launched PointsPay, a system that allows you to convert reward points from any of their partner loyalty programs (including Hilton, American Airlines and Delta) into the currency of your choice. You then load the currency onto a prepaid Visa card — either a virtual card to use for online shopping via computer or iPhone or a physical card you can print out — that is accepted by more than 30 million merchants worldwide. For now, points and miles cannot be combined on PointsPay.

Richard Postrel, Miami-based CEO of Swift Exchange, is getting ready to launch yet another electronic system for converting miles and points into spending money later this year.

All three programs add flexibility to the ways we can use our rewards.’s PayPal credits and Loylogic’s PointsPay both allow their loyalty program partners — whether airline, hotel chain or car rental company — to dictate the payout value for their rewards.

At a frequent flier conference held in April 2012, a rep for American Express Rewards admitted the cash value for rewards redemption is a penny a mile, sometimes even less. At that rate, an hourlong, 430-mile flight from Los Angeles would earn you a Big Mac and some fries. Despite the paltry rate, the adoption of currency-for-rewards benefit is well under way.

Some airlines won’t trade miles for cash

Not all loyalty programs listed on allow miles to be traded for cash. American, Delta and US Airways allow frequent fliers to do so, for example, but United does not. Serious frequent fliers complain that, so far, the cash value being offered for miles is a lousy trade-off in terms of value.

Christopher Baranard, president of, suggests the appeal is more of convenience than value and consumers shouldn’t expect airlines to trade miles for the same cash value they would get by spending them on plane fare.

“Getting a business-class flight to Europe with my miles is always going be way more valuable than converting those miles into cash,” Baranard says. “It’s affordable for the airline to get me on that plane, because the plane’s going anyway and typically there are empty seats. They can manage that inventory, but they can’t manage it by just converting it into cash whenever I want. They can only afford to give me a certain value per mile.”

Built on ‘breakage’?

Many people in the industry maintain that airlines build their loyalty programs based on “breakage” — the idea that if they wait long enough, miles will expire and they won’t have to trade them for seats. Baranard disagrees. “Our experience with our airline partners is that the vast majority want people to earn and burn as much as possible,” Baranard says. “It’s been empirically proven that if they can get somebody through that cycle of earning enough miles to get something for free, and start that process again, those people become much more engaged consumers.”

Richard Postrel of the soon-to-launch Swift Exchange program says many loyalty programs are indeed built on breakage because there is still some doubt that redemption leads to a more engaged consumer (ie, additional revenue). He’s out to prove it does and that there is a way for loyalty programs to take advantage of that without losing any profit. Postrel’s system for making miles and points spendable is based on a patent he developed and what he calls “an ecosystem” of participating loyalty programs, merchants and credit card issuers. A scannable code loaded onto smartphones will function like a credit card at checkout.

The idea behind Swift Exchange is to take advantage of the massive amount of points and miles that are never redeemed. What Postrel hopes to do is give people an easy way to spend those rewards when they shop, instead of paying cash, by first converting their rewards into cash and then presenting a scannable code on their smartphones that they can use like a credit card at checkout.

It’s standard practice for merchants to begin discounting goods 30 days after putting them up for sale, then increasing those discounts for the next 60 days. Postrel is building a network of retailers willing to trade their discounted goods for rewards currency.

“There are 28 million merchants on the planet who accept credit cards that can use this system,” Postrel says of Swift Exchange. “All they have to do is align their discounting methodology with the trillion-dollar rewards wallet out there.”

That’s the same philosophy driving Loylogic. Steven Landuyt, head of global sales at Loylogic, points out that rewards issued in the U.S. in 2010 had a perceived value of $48 billion, according the 2011 Colloquy Loyalty Census released in April 2011, but $16 billion worth went unredeemed. “That is huge,” Landuyt says. “If the average household, in a time or economy crunch, has the ability to use some of their points for a day-to-day spend, that’s probably good for them but, frankly, it’s good for the merchant, good for business. It’s like an untapped currency.”

Both Loylogic and Swift Exchange have seriously invested in the gamble that retailers, credit card issuers, loyalty programs and customers are finally ready to adopt rewards as a spendable currency.

Whether points-as-currency will succeed may depend less on frequent fliers than on ordinary folks looking for extra spending power and an easier to way to use stagnating miles and points. “The silent majority or middle class don’t really measure value like frequent fliers,” Pedersen says. “My guess is, as these currency systems come to fruition, the frequent fliers will reject it because they’re only getting seven-tenths of a penny for their mile at Home Depot, but the majority of people may go for utility.”

“Frankly, coming off a couple years of economic hard times, I think that utility would have been well received as well by people who’ve had more miles than money,” he adds. “I think it’s utility that will make this successful.”

See related:  Determining value of reward redemption

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