Traditional rewards have become a zero-sum game for issuers

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The holiday season is about giving. But consumers who use their credit cards for holiday shopping know that it is about getting, too. Especially when it comes to rewards.

The 2018 Accenture US Holiday Shopping Survey reveals that 55 percent of US consumers plan to use credit cards for holiday shopping this year. Of those, 65 percent will use a cash-back rewards card, 27 percent will use a retailer rewards card, and 15 percent will use a travel or airline rewards card. When asked why they prefer credit cards for holiday shopping, 49 percent of consumers want more cash-back rewards, 33 percent want to maximize points, and 25 percent want to earn points for specific purchases.

There is no denying that rewards are hot this holiday season. They have been for years. Credit card issuers have been locked in an arms race of escalating points, deals and cash-back percentages for more than a decade. This no-holds-barred battle has fed consumers’ insatiable appetite for more and more rewards. Accenture analysis shows that consumer spending on rewards cards tripled between 2007 and 2017, accounting for 100 percent of the growth in credit volume during that period.
But all good things must come to an end. Rewards have become a mandatory minimum. A zero-sum game. The market is so saturated that card issuers are no longer competing to deliver choice, convenience, control and value, which drive consumers’ payments behaviors. Instead, they are racing to nowhere for differentiation in a highly commoditized market. And with downward pressure on interchange fees, the economics of the traditional rewards model are not sustainable.

It is time to break the mold and create the next generation of rewards. Of course, consumers will continue to demand rewards. This will not change, especially in the era of digital immediacy and customer centricity. But rewards do not have to be rooted in traditional “spend and get” dynamics to satisfy consumers—and set card issuers apart from the crowd.

Instead of focusing on rewards, card issuers should focus on rewarding. This is a profound shift from a transactional strategy to a relational one. It is a shift from “rewards” based on points, rotating categories and coupons to “rewarding” with experiences, exclusivity, access, convenience and ease of redemption. It is about knowing consumers beyond the transaction—who they are, how they live, what they value.

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