Rewards have become as vital as ever in recruiting and keeping cardholders. But that could become problematic if issuers are forced to cut rewards programs to offset costs.

Indeed, anyone owning a credit card is likely to have a rewards card, new survey data from Phoenix Marketing International suggest.

After the economic downturn that began in 2009, consumers were far more likely to concentrate their card spending on rewards cards than before the downturn, Phoenix Marketing found. Consumers at all income levels favor rewards cards, including consumers forced to revolve a balance, which was not the case before the recession, the firm found.

In an online survey the firm conducted from January through December of 2011 involving 18,900 U.S. credit card customers who were 21 or older and had household incomes of at least $20,000, 75% of respondents owned a credit card with a rewards program, with the odds rising with their incomes.

The data imply that rewards are "more mainstream" than some may assume, Greg Weed, Phoenix Marketing's director of card performance research, said in an interview. "Because there has been such a heavy pursuit of affluent consumers for rewards cards, it could appear that rewards are primarily a tool for reaching upscale consumers. But consumers at all income levels are organizing their card use and spending around rewards."

Among respondents that earned up to $30,000 annually, 74% had a rewards card and 64% had or also had a card with no rewards, the survey indicated. Among respondents who earned at least $150,000 a year, 92% said they had a rewards card, and 50% said they had or also had a card that offered no rewards.

Not surprisingly, consumers tended to pile most of their spending on rewards cards. Respondents overall said they directed 80% of their credit card spending to those with rewards, with the remainder going to nonrewards cards.

Several years earlier, that trend was less pronounced, Phoenix Marketing said. In 2003 in a similar study involving 14,300 consumers, respondents overall said they directed about 65% of credit card spending to rewards cards and 35% to nonrewards cards.

Following the recession, among all households that carried a balance on their credit card account from one month to the next, 63% concentrated their spending on a rewards card compared with 37% who put their revolving-credit spending on a nonrewards card, the firm said.

In 2003, it was the reverse, with consumers putting more of their revolving-credit spending on nonrewards cards, Phoenix Marketing said. Some 67% of card receivables in 2003 were associated with cards that offered no rewards, while 33% of revolving balances were on rewards cards.

The message for issuers is that consumers at both ends of the income spectrum are keenly aware of how to maximize the benefits of rewards, Weed says.

"Issuers are still going after affluent consumers with juicy rewards programs, but it would be a mistake for issuers to overlook the attention people at lower income levels also pay to rewards, especially after the recession," he says.

So what if card issuers suddenly earned less credit card interchange to offset the costs of providing consumer rewards programs?

That possibility is in the air this week, as analysts are predicting that Visa Inc. and MasterCard Worldwide and related banks may soon reach a settlement in a long-running case merchants have pursued against the card networks and banks.

Such a settlement could involve monetary damages of $8 billion to $12 billion, plus a temporary reduction of 20 to 40 basis points in credit card interchange rates and the ability for merchants to add a surcharge on credit card transactions, Keefe, Bruyette & Woods, a New York-based equity firm, said in a July 11 report to investors.

Interchange rates average about 1.6%, but for certain types of cards, including those with rich rewards, they can be as high as 2.25%, analysts say.

"If issuers have to endure a cut in credit card interchange rates, it will be costly. But it won't be devastating," Brian Riley, research director with CEB TowerGroup, said in an interview.

Issuers would be unlikely to rock the boat with existing popular rewards programs, but they might increase interest rates, Riley suggests.

"One way issuers are hedging their bets against lost revenue is by managing the interest rates on revolving-credit accounts," Riley says. Over the past six months, the average annual interest rate on credit cards increased 50 basis points to 20.57% in June from 20.25% in November, according to CEB TowerGroup data.

Though rewards have become a vital tool for marketing credit cards, issuers must find new ways to balance their costs if interchange comes under further pressure, Riley says.

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