As merchants seek alternatives to paying swipe fees associated with accepting credit cards, more are exploring incentives that are enabled by the
In one concept that recently
Several credit unions began testing merchant-funded gift card rewards this year via Prizeout Partners CUSO, and now 31 institutions are participating, with credit union members receiving a bonus of up to 20% on each gift card sold.
A key selling point to consumers is the immediacy of the cash-back rewards generated each time a user makes a purchase, which aligns with consumers' growing
The process does not rely on instant payment networks like RTP or FedNow, but "customers are able to access their cash-back reward in their account the instant they pay at a restaurant or check out at a store, which is not how most card rewards work," Jockisch said, adding that it can take days or weeks for rewards funded by traditional credit card interchange to appear.
Prizeout gift cards are redeemable at participating merchants through the shopper's mobile banking app, where they scan a QR code, using technology that works at nearly all store checkouts. For many consumers, the rewards they're earning through Prizeout are more than they could earn with a basic credit card, Jockisch said.
"Many of the best credit card rewards programs require strong credit scores and annual fees," he said, noting that Prizeout puts a comparable level of cash-back rewards within reach of average-income consumers.
Credit unions also reap new revenue through the program. With each gift card sold, Prizeout keeps a portion of the merchant-funded bonus amount, which it splits with participating credit unions.
Members Development Company, a Kansas City, Missouri-based credit union technology firm, last month joined the Prizeout Partners CUSO, bringing the gift card program as an option to another 80 credit unions.
The fact that merchants are fully funding the rewards credit union members may earn is a positive, said Jeff Kline, president and CEO of MDC.
"Certain people are trying to crack down on credit card interchange fees, and while it's hard to know what will happen there, it makes sense to support rewards that are paid directly by merchants," Kline said, alluding to the
After starting with larger, national merchants like Walmart and CVS, Prizeout has gained traction in recent months with local merchants in many markets.
New York-based Prizeout has a sales force that helps market the gift cards to local merchants, but credit unions are also having some success selling the program to their corporate customers, said David Metz, Prizeout's CEO.
"Merchants say the incentives they pay to sell gift cards is less than the cost of online advertising, which has become more costly and less effective with new privacy controls and cookies that make it harder for merchants to track results of advertising technology," Metz said.
Tackle Shack, a Middlebury, Indiana-based shop that sells fishing equipment and boats, recently signed on to Prizeout's program to reach local credit union customers.
"The credit card rewards program was something new and innovative we hadn't tried before and we've seen a boost in sales from new customers," said Brendon Sutter, who co-owns the eight-year-old store with his brother.
Warehouse Climbing Co., a rock-climbing gym in Goshen, Indiana, is another small merchant that signed up with Prizeout this year to make gift cards available to local residents and others. Goshen-based Interra Credit Union is a participant through its gift card program branded "Prizeout, powered by Interra."
"We have a lot of college students using our facility and people from out of town, and people from out of town can buy our gift cards now," said owner Ryan Borntrager.
Successful
"Merchants are usually looking to get a lift from either more frequent visits or bigger purchases on each visit," he said, noting that systems where consumers receive instant rewards tend to be most effective.
Certain other merchants that rely on recurring payments from subscriptions — like wireless service providers — are using discounts as an incentive to shift customers to paying directly from their bank accounts versus credit cards, Nagarsheth said.
For example, this year,
"It remains to be seen whether this strategy may spread to other categories. Some merchants may not feel their customers are sticky enough to risk it, but I could see insurance companies and other commodity-type merchants using this incentive to get customers to switch the way they pay," Nagarsheth said.
Along with faster payments, the expansion of open banking and
"One of the goals of open banking that we're starting to see in Europe is where merchants are trying to move people toward making purchases from bank accounts to completely bypass card fees. Merchant incentives are required to make that happen, and those foundations will need to be built, whether it's through rewards or discounts," he said.
