Capitalizing on the ‘Pay with Points’ Credit Card Rewards Trend

The way credit card customers want to ‘spend’ their reward points has changed in the wake of the pandemic. More are opting to pay for all kinds of purchases using points, whether at checkout or after the charge appears on their monthly statement.
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Credit card reward points have traditionally been used to pay for things like airfare, hotels and rental cars. Increasingly, they can now be used as a type of currency to pay for just about anything.

The “pay with points” phenomenon has grown post pandemic, with issuers such as American Express, Citi and Mastercard offering customers the option to use reward points to pay for a wide range of goods. Not all of them involve paying with points directly at checkout.

With Citi’s pay-with-points program, for example, customers log onto the bank’s mobile app after making purchases, select an eligible purchase, and then receive a statement credit within two or three business days. American Express’ program, on the other hand, has a select group of merchants where customers can pay at checkout with accrued points.

However the program works, pay with points is on the rise. Though the concept is still in its infancy, a growing portion of credit card users has made use of this option since 2020, which, in turn, has started to get the attention of more financial institutions of all sizes, observes Len Covello, chief technology officer of Engage People, a loyalty program company.

“With large financial institutions, credit card companies and major retailers like Amazon and Walmart beginning to accept points as a payment option for participating loyalty and reward programs, we’ve seen a significant jump in adoption,” Covello says in an interview. That, in turn, has brought more interest and greater participation from financial institutions. he adds.

Untapped Shopping Spree:

The pool of available loyalty reward points totals $100 billion in value.

The loyalty network available via Engage People allows participants to pay with points directly at checkout. Recently it partnered with Bilt Rewards, a loyalty program for renters, to allow Bilt Mastercard holders to pay with points at participating online retailers. With Bilt, which launched in June 2021, users earn one point for every dollar they spend on rent.

Covello says that pay with points has been more of a slow build than an overnight success. But he believes it will become “a truly ubiquitous method of payment for many.”

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Improve Loyalty and Engagement

Enabling a pay-with-points program can increase overall customer engagement with loyalty programs, some research suggests.

A 2021 study from The Wise Marketer, which surveyed 26 credit card issuers, payment processors and networks, found their primary reasons for offering a pay-with-points option were improved cardholder engagement, convenience and flexibility. Another benefit cited by the respondents was an increase in the perceived value of the card and the loyalty program in the eyes of customers. The survey found about 60% of respondents said they had a pay-with-points solution already.

Covello agrees that the pay-with-points functionality can spur consumers to engage with loyalty programs more frequently. That’s important because people tend to forget about loyalty programs and often fail to spend the points they earn.

“There are more than $100 billion worth of available points in the marketplace today,” Covello says. “The average American household is enrolled in approximately 18 loyalty programs but is active in only about 50% of those programs, so there is a tremendous pool of points available to consumers to use today.”

In his view, card issuers are better poised to take advantage of these latent points if they implement pay with points for customers.

Wake-Up Call:

Pay with points can boost customer engagement with dormant rewards programs.

Covello also argues that pay-with-points programs help support increased credit card usage across the board.

For example, with credit card companies, consumers often use their points to make a larger or aspirational purchase. “Say they want to purchase a new TV, they might use their points to subsidize the purchase and put the remainder of the transaction on their credit card,” Covello explains.

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Not Always the Best Value

In some cases, however, using pay with points at checkout may not be the best option for consumers. Some who track loyalty programs say the value will be significantly less than if the points were redeemed in another way.

An analysis from The Motley Fool found that, in most cases, the consumer would receive on average a flat rate of $0.01 per point when redeeming credit card rewards directly with a retailer at checkout, and even less with some issuers, “which is not exactly a high-value redemption.”

“For instance, if you have a travel rewards card, you’ll typically get the most value by redeeming miles for travel through your issuer’s rewards portal or by transferring them to a hotel or airline partner,” the article advises consumers. “This can yield impressive returns, with some redemptions scoring a per-point value of $0.04 or more.”

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Another downside is that by using accrued rewards points, rather than the rewards credit card itself, “you’ll lose out on any cash back or points you may have earned by using your card to pay for the purchase,” Motley Fool cautions.

Popular website The Points Guy, in an blog analyzing American Express’ pay-with-points program, also argues that airfare and other travel expenses are a better use of points.

“If you have any Membership Rewards points-earning cards, you can redeem your points at a fixed rate of 6 cents each to wipe charges off your statement,” the blog says. “However, TPG values Membership Rewards points at 2 cents each, so you’d be sacrificing a lot of value if you go this route.”

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