Research Sheds Light On Credit Card Rewards Programs

TowerGroup, the pioneering research and consulting company dedicated to serving today’s leading financial institutions, has issued a new report. It is called “Pointing in the Right Direction: Rethinking Credit Card Payment Rewards in a Challenged Economy.” The report explores today’s hurting economy and offers insight into what credit card companies can do to help customers make their payments in these troubled, troubling times.

Traditionally, credit card companies have offered such rewards as free vacations or other luxuries to customers that demonstrated reliability in maintaining good credit and getting payments in on time. This has worked very well for over 25 years, says TowerGroup’s research. Credit card companies saw that they could get their customers to make more purchases via credit card with old-style motivational rewards and loyalty programs.

It’s also been demonstrated that a good incentives program can get customers to measurably prefer one credit card to another. In fact, TowerGroup’s research suggests that rewards programs are responsible for or involved in up to 70% of all credit card transactions in the United States.

But, the recent financial downturn instigated by the subprime credit crisis in the United States has made conditions different for the purveyors of credit cards. Buyers are no longer so confident and, hence, no longer so eager to buy. Traditional incentives that credit card companies have offered - Carribean getaways and expensive electronics equipment and the like - appear in a very different light to the consumers of 2008. For these cash-strapped consumers, who may be thinking more about how to hold onto their homes rather than about a tropical vacation, it is a more sinister light.

How can credit card companies respond to these dark times? They should think about giving rewards of cash, which could help people pay off debts. This, in turn, would motivate people to pay off their credit card debts and improve their credit rating.

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