Flexible Rewards Push Merchants and Issuers to Rethink Loyalty

Loyalty points have largely remained trapped inside the programs that issued them. That model is beginning to loosen as a growing number of initiatives promote greater flexibility, making rewards easier to earn, redeem and use across shopping journeys rather than within a single brand.

PYMNTS Intelligence has found potential in reducing the friction consumers encounter while trying to discover, activate and redeem rewards. When rewards become easier to use, merchants gain a better opportunity to influence purchasing decisions before shoppers complete a transaction rather than after it.

The findings underscore that rewards remain an important driver of consumer behavior. According to PYMNTS Intelligence’s “Embedded Offers: The Billion-Dollar Opportunity Inside Recent Consumer Spending,” offers influence far more than the final purchase price. Seven in 10 consumers changed what they bought after seeing an offer, while 71% adjusted how much they purchased and 43% switched payment methods to capture savings. Rather than suggesting merchants need to create more rewards programs, the findings point toward making existing incentives substantially easier to access.

Convenience Makes Rewards Easier to Use

Consumers consistently indicate that convenience has become as important as the reward itself. PYMNTS Intelligence found that 8 in 10 consumers would choose a merchant offering a seamless shopping experience in which discounts, offers and rewards are presented automatically during checkout. Nearly as many said they would consider changing their default payment method if another option delivered intelligent, real-time rewards.

Those preferences extend beyond retailers. In “The Smart Basket Opportunity: Why Issuers Are Ready for a Better Rewards System,” issuers acknowledged that traditional loyalty programs often fall short of influencing the behaviors they seek to encourage. Fewer than half believe their existing incentives effectively drive loyalty, card switching or spending patterns, while only 39% currently maintain merchant partnerships that expand reward opportunities. More than 8 in 10 expect personalized offers to become central to loyalty strategies within the next five years.

The emphasis is notable because it shifts attention away from offering larger points balances and toward making rewards visible precisely when consumers decide where to shop and which payment method to use.

That does not mean the industry has arrived at true rewards portability. Consumers generally still cannot move points freely among competing merchants or combine rewards across unrelated loyalty ecosystems in the same way they might transfer airline miles between alliance partners. Most programs remain closed, with merchants maintaining control over how and where points are redeemed.

Recent retail partnerships nevertheless suggest that the market is moving toward greater flexibility. One example is the expanded relationship between JCPenney and Aéropostale, which allows members of the retailers’ loyalty programs to earn and redeem rewards across both brands. While limited to a shared retail ecosystem rather than universal portability, the arrangement reflects an effort to reduce barriers for consumers who increasingly shop across multiple brands rather than remaining loyal to a single merchant. The initiative expands where rewards can be used without requiring consumers to learn an entirely new loyalty program.

Elsewhere, another example comes from the beauty sector. Members of Sephora Beauty Insider can earn and redeem Beauty Insider points not only at Sephora stores and Sephora.com, but also at Sephora locations inside Kohl’s after linking their accounts.

True points ubiquity would allow rewards to travel broadly across merchants, issuers and payment providers. Today’s initiatives represent incremental steps instead. They make rewards more flexible within selected partnerships while preserving each company’s control over its loyalty economics.

For merchants, that may prove to be a practical compromise. The PYMNTS Intelligence research suggests consumers are less concerned with who funds the reward than with whether it appears at the right moment and requires little effort to redeem. Embedded offers, automatic reward application and simplified redemption all reduce friction without requiring companies to abandon their proprietary programs.

Issuers reach a similar conclusion. Rather than viewing rewards solely as post-purchase incentives, many now see them as tools for influencing payment choice before a transaction is completed. Consumers have made their expectations clear. They want rewards that fit naturally into the shopping experience rather than requiring them to search multiple apps, activate offers or remember which payment method delivers the greatest value. Companies that reduce those points of friction stand a better chance of influencing purchase decisions, increasing conversion and strengthening customer loyalty.