News & Views - Savantor

Do reward schemes work?

Friday, 30 November 2012

Does cashback, loyalty points or other reward systems actually offer something consumers are interested in? Research carried out by Defaqto identified 245 different credit cards available in the UK, of which 9% offer cashback. Points schemes and shopping rewards are offered with 20% of cards, making them the most common type of reward scheme, while 10% of the cards offer air miles. The report found that for 13 out of the 22 cashback cards available to customers spending £1,000 a month on their card would earn £100 or less in cashback over a year, with some of the lower paying cards only offering 0.5%. The lowest paying card would generate just £30.

However, the report suggests that cashback is popular with consumers as it forecasts continuing growth in the cashback market driven by strong consumer demand. The number of credit cards offering a cashback reward has doubled over the past two years, which has not been mirrored by other rewards features. The current 22 cashback cards compares with 11 in October 2010.

The research found cashback was ranked as the third most important feature for customers behind no annual fees and long interest-free periods. Among the over-55s cashback is the second most important feature behind no annual fee. The report says the maximum that can be earned with points schemes can be as high as £180 a year for a £500 monthly spend but it cites Which? research showing that one in two card customers never redeem their points.

A study earlier this year by Asda Money found that one in three credit card holders do not make use of their credit card reward schemes. Also one in three credit card holders claims that they have to spend too much on these cards to get a tangible return, while 24% said it takes too long to get these rewards. Cashback cards do not normally credit the money earned until the end of the year.

The catch of using a cashback credit card for spending is usually the higher-than-average interest rate most cards of this variety carry. If the cardholder does not pay it off in full each month, the interest they will be paying will cancel out any cashback earned. Maybe using the card in conjunction with cashback web sites that track your online spending like Quidco is a better option?

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