Credit card issuers in the United Kingdom will have a receptive audience if they strengthen and more heavily promote their rewards programs.
Of the 501 cardholders Auriemma Consulting Group’s London office surveyed online in the fourth quarter of 2011, 56% owned a rewards card, suggesting rewards programs are not only important but also there is plenty of room for growth, Matt Simester, a Auriemma managing director, tells PaymentsSource.
Indeed, UK cardholders have become apathetic toward rewards programs because issuers have invested less in them and the related marketing, the survey data suggest. Among respondents, 27% said they were not interested in opening a new rewards card, 31% rated rewards as less valuable than a year ago, and 25% said they were neither satisfied nor dissatisfied with their rewards program.
Indeed, issuers don’t have as many tools with which to motivate cardholders to charge more and to attract new cardholders because of various market factors, Simester says.
“There aren’t many levers that a credit business can pull now to make money on new business,” he says. “In UK-specific terms, we are at the lowest cost of funds; we are at quite a low level in the delinquency cycle; we have interchange which can only go one way, which is (down); we have no payment-protection insurance; and there are more people paying down than ever before. If I’m a credit card issuer, what have I got left? I’ve got rewards.”
Some cardholders would become interested in rewards programs and spend more with them if presented with strong and innovative programs, Simester’s findings suggest. Nine percent of the respondents said it was “extremely likely” they would get a rewards card, while 34% were “somewhat likely” to get a rewards card, depending on the offer.
The “extremely likely” percentage rose to more than 20% when considering a free program. If a fee-based program offered a higher rate of rewards earn on purchase, 16% of the respondents said obtaining such a card would be “highly likely,” and 13% said they would obtain a fee-based card if there was a better reward redemption value.
The opportunity is obvious for issuers because one-third of the UK credit card market equates 20 billion pounds in card balances, Simester says.
But at a time when rewards programs have become more important to issuers as a means for customer retention as well as attracting new customers, rewards values and marketing efforts have decreased, he says.
Simester says the change has not gone unnoticed.
“Consumers aren’t stupid; they know when programs have been reinvented and watered down,” he says. “We’ve seen a lot of disinvestment in rewards over the last three years. Issuers relaunch programs, but I’m not aware of any programs that have actually strengthened the proposition as a result.”
Because UK markets look to the U.S. for ideas, the UK issuers may turn more to merchant-funded rewards programs, which have been increasing in the U.S., Simester says.
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