The New Competition in Card Rewards Is Over Rules, Data and Money

Credit card rewards were built for a world where the issuer set the terms, the consumer spent and the value arrived later.

But as payments sped up, that legacy model stayed the same. Smart basket technology could offer a solution for closing the gap. Findings in “The Smart Checkout Opportunity: Why Issuers Are Ready For A Better Rewards System,” a PYMNTS Intelligence report in collaboration with FIS, reveal that nine in 10 issuers surveyed are highly interested in adopting smart basket systems. More than eight in 10 say they would participate if such a system became commercially available.

And across all cardholder behaviors studied, issuers rated smart basket tools far more effective than current rewards, with net effectiveness scores ranging from 43 to 59 percentage points.

But that enthusiasm should not be mistaken for simplicity. The report’s most revealing finding is not that issuers want smart basket. It is that they want it on tightly governed terms. Issuers view smart baskets as a way to reclaim control over loyalty economics. Three in four expect such systems to give them more control, especially over targeting, merchant participation and offer timing.

The word “control” matters. As rewards shift from broad issuer-funded programs toward incentives that may be funded by brands, merchants and other ecosystem participants, issuers are not simply adding a new feature. They are deciding how much of the cardholder relationship, data flow and incentive economics they are willing to expose to outside partners.

Traditional Reward Offers Have a Relevance Problem

Traditional rewards still work reasonably well as blunt instruments. They can encourage card use, lift spend and support broad engagement. But they perform less well where issuers increasingly need precision.

Fewer than half of issuers say their current incentives drive loyalty or retention. Only 47% say rewards cause cardholders to switch to their cards, and just 40% say they shift the timing of spend.

Smart basket technology attacks that weakness by making rewards immediate, contextual and transaction-specific. Instead of asking consumers to activate an offer in advance or wait for a statement credit after purchase, the system can identify eligible savings in real time and apply them at checkout. The value becomes visible at the moment the consumer is deciding how to pay.

That matters because rewards are no longer competing only against other rewards programs. They are competing against friction, relevance and timing.

Read the report: The Smart Checkout Opportunity: Why Issuers Are Ready For A Better Rewards System

Issuers see smart basket as a way to regain control over loyalty economics, particularly across the data that determines eligibility, the rules that govern timing, the funding flows that settle the offer, and the liability model that determines who pays when the system fails.

The report highlighted the following breakdown:

Rules: Smart basket only scales if issuers can govern the transaction layer: who qualifies for an offer, when it appears, who funds it, how disputes are handled and where liability sits when incentives misfire.

Data: The value shifts from generic rewards data to permissioned, transaction-level intelligence that can identify basket contents, cardholder behavior, merchant context and incremental lift in real time.

Economics: Rewards move from broad issuer-funded subsidies to a more dynamic incentive marketplace, where brands, merchants and issuers co-fund targeted offers tied to measurable spend, retention and conversion outcomes.

The card rewards war is therefore entering a more technical phase. Richer offers will still matter. So will consumer experience. But instead of rewarding whole categories with static rates, issuers could participate in a system where brands and merchants fund targeted behavior at the transaction level. This turns the path forward into one that goes straight through the incentive layer inside the transaction.

Smart basket may arrive as a better way to save at checkout. Its deeper impact is that it turns loyalty into infrastructure.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.