CLEARWATER, Fla.-While some have speculated margin pressures on card portfolios will reduce or even eliminate rewards programs, several processors indicate they believe rewards will remain a driver of card usage.
Bob Hackney, president of Card Services For Credit Unions acknowledged recent regulatory changes have caused some credit card issuers to reevaluate rewards programs, with some banks "tweaking the levels" to require more cardholder spending activity to earn the same rewards earned in the past with less activity. However, "they are not going to do away with rewards cards because 80% of credit card purchase volume is on rewards cards."
"In our portfolio, a platinum card generates 77% more revenue than Visa classic cards," Hackney said. "Usage is doubled, volume is doubled, outstandings are doubled. People are loyal to the card of their choice."
Bill Lehman, VP of portfolio consulting for CSCU, added, "We are not seeing a reduced number of programs; the rewards programs are just changing a bit. Credit unions are looking into a wider range of cards that fit their members' needs. They are giving options to recognize the fact some people might want a rewards card, while some might want a card with a lower interest rate."
Glenn Schechter, director of credit services for PSCU, St. Petersburg, Fla., warned those who are thinking about eliminating rewards programs in the name of profitability that that expense elimination comes with a cost.
Having an overall relationship rewards program, he added, helps offset the compression of the return on a credit card portfolio. "For those who react to credit card ROA going down by eliminating rewards programs, that is a short-term benefit," Schechter asserted. "It would lose more cardholders in the long run. The challenge is to craft a rewards program that allows an issuer to maintain respectable margins on the cards portfolio while deepening the relationship with the member."
In addition to some of the same "tweaks" to reward levels cited by CSCU's Hackney, Schechter said some credit unions are rolling in other loans and savings products to reflect an overall member loyalty rewards program that covers the whole relationship.
