Downturn hits US card rewards??
Banks in the US are reining in the rewards they offer credit cardholders as the economic downturn deepens. Airlines have been cutting back on reward offerings since the latter part of 2008 and now banks are following suit. Amid concerns over rising credit card delinquencies, banks are trying to cut costs and increase profits, and 2009 is likely to see more banks introducing shorter expiration periods, higher redemption fees and earnings caps on rewards.
In December the exclusive American Express Centurion card stopped giving its members two free nights for the price of one at Mandarin Oriental hotels in Hong Kong, Boston and Miami . Instead they will now will get a US$200 credit – rooms at Mandarin Oriental hotels generally cost at least US$500 a night.
In March, Citibank will drop a redemption option for airline tickets in its ThankYou Rewards programme for bank customers that may ultimately require many members to need more points ti qualify for flights.
JPMorgan Chase has recently introduced what are being seen as less generous rewards for some customers, while Discover requires cardholders to forfeit cash rewards if an account is not used for 18 months or if payments are over two months late.
Since the 1980s banks have encouraged greater card use by offering an expanding number of benefits such as cashback, flexible redemption options and airline tickets. However as banks now find themsleves struggling to pay the bills, rewards are being cut back.
Greg McBride, senior analyst at the Bankrate.com consumer information website, said the cutting rewards is a short-sighted move as it will merely drive cuctomers into the arms of competitors.
American Express is planning a number of cost-cutting moves, such as expanding its programme to include less costly rewards, which the company says will save it about US$1bn in 2009.
Chase Freedom credit cardholders are now only receiving a 1% cash reward on most purchases and a 3% reward on promotional items. Up until November the card provided a 3% automatic cash back on the categories in which consumers spent the most. The change means that customers will earn fewer rewards if they do not use the card for promotional items.
2009 is likely to see a number of changes in the rewards landscape, with more cardholders having to meet spending thresholds to earn bonus points and some issuers adopting a new redemption model that may require more points for travel rewards. There may also be shorter expiration dates, higher redemption fees and caps on rewards.