Why Cash Back Is King When It Comes To Card Rewards

The world of consumer spending has radically reset in recent months in ways that had been wholly unimaginable when the year began.

Chris Roncari, Elan’s head of credit card product development, told PYMNTS that the payments industry has seen significant credit card debt paydowns as the pandemic drives historic drops in both U.S. consumer confidence and spending.

“What we are taking away is that consumers are changing their spending habits,” Roncari said. “Our data has shown a pullback happening in spend in certain areas, particularly when you look at discretionary categories like travel or dining.”

The good news: Roncari said he doubts that the downturn portends a long-term shift in consumer spending or savings. Instead, he said, it looks like a rapid course correction by consumers given the economic instability they now face.

Roncari said he believes that once some normality returns to consumers’ lives, spending will rebound as they become “more comfortable using credit cards as a payment tool to finance their purchases.”

But until then, the challenge for financial institutions (FIs) will be creating experiences that engage customers, speak to their current needs and offer them better products and more choices in their spending journeys.

“We know that it is important for us to adapt to changing customer needs and expectations,” Roncari said. “That means trying to find new ways to help [consumers] navigate the crisis and solve challenges, and make it easier for them to do business with us.”

Elan is making changes to its online account management tools, payment capabilities, product benefits and features, “and we’re looking at our repayment plans and where we can create new options to help our customers,” Roncari added.

He said he believes that what customers need the most right now is choice about how they spend, when they spend and how they’re rewarded for it.

Rethinking Rewards

According to Roncari, the market for card-connected rewards is changing as consumer spending habits shift. For example, travel rewards were once incredibly popular, but are less relevant to COVID-fearing consumers who wish to avoid airplanes, long hotel stays or other travel opportunities beyond a car ride from their homes.

That doesn’t mean issuers need to abandon travel rewards entirely, as consumers will eventually get back out there. But Roncari noted that it’s an excellent space to consider building in more choice.

“The programs that are putting consumers’ needs first and providing flexibility — particularly in redemption options — are thinking about the current need,” he said. “Customers want to be able to use their reward points when and how they want. Otherwise, travel rewards can be a useless benefit.”

Issuers also need to think about cash back, which was incredibly popular with consumers even pre-pandemic. Roncari said it’s only grown more in-demand of late because cash rewards provide the most flexible reward for consumers.

Cash back can either come in the form of a certain percentage connected to consumer spending, or it can involve a system where merchants make it easy for customers to redeem points for cash or gift cards, he explained.

“I think we will see cash back continue to increase in popularity,” Roncari predicted. “Any issuer that has a points program and doesn’t have cash back as a redemption option will have to think about finding a way to include that feature.”

The Industry’s Future Landscape

Roncari pointed out that the changes won’t apply just to what perks are offered in rewards programs, but also how they are offered.

He said he expects greater interest in tiered programs that start customers at base levels, then elevate the types of rewards they receive in proportion to how often they interact with the program.

“That’s a win for the consumer,” Roncari said. “And from a business perspective, [merchants and issuers] are always looking for ways to reward loyalty.”

Tiered rewards programs “are a great way for a retailer or a card issuer to identify their very best customers, and also find ways to attract different segments into their businesses over time,” he added.

Roncari said change has clearly come to the entire landscape — particularly to how issuers attract customers and keep them engaged once recruited.

“One thing we can all say in this industry is that the future will definitely look different from today,” he said. “From a banking perspective as a credit card issuer, it’s our goal — and our challenge — to find ways to remain relevant in a world that’s changing and evolving.”