Today’s credit card rewards programs strive to appeal to the modern-day consumer, but their roots go all the way back to the late 1800s. Founded in 1896 by Thomas Sperry and Shelly Hutchinson, S&H Green Stamps was one of the first retail loyalty programs in the United States. Merchants bought the stamps and distributed them to customers based on the amount of their purchases. 

Although the S&H catalog is a distant memory, customer loyalty programs remain popular – and competitive. Today, industry estimates report that more than three out of five credit cards issued in the U.S. are linked to rewards programs. For credit unions and financial institutions considering a card loyalty program, it’s useful to know the factors driving consumer engagement with card reward programs and how cashback compares to loyalty points in terms of their preference.

Vantiv and Socratic Technologies recently teamed up to survey 500 consumers about card rewards programs. The survey uncovered the following:

Reward Program Preference 

From gas stations to airlines, quick service restaurants to high-end department stores, a wide range of business verticals offer card rewards programs and customer participation rates vary. Vantiv and Socratic Technologies’ research revealed that grocery stores and credit card rewards programs have the highest participation rates, with 57% and 56%, respectively. This was followed by national retail stores (36% participation), hotels (28% participation) and national restaurants (27%). Credit card rewards are the favored program, with 37% of respondents preferring credit card rewards versus 18% preferring grocery store rewards. 

Participation in card rewards programs varies by generational demographics as well. Credit card rewards are more appealing to baby boomers (42% participate) while retirees appear to gravitate toward grocery store rewards (22%). Gen X-ers have the highest participation rates in hotel rewards programs. One-third of millennials report that they dislike rewards programs because there are too many cards to carry (their top complaint), but 20% will provide their membership information via a mobile wallet. 

Card reward program participation also varies by gender. For example, in the past three months, more men (29%) than women (20%) have used an airline rewards program, while more women (65%) than men (50%) have used a grocery store loyalty program.  

Why Consumers Sign Up

Nearly three-quarters of Americans say that rewards are one of the most important factors when choosing a credit card. And sign-up bonuses can pave the way to engagement. Reward program sign-up bonuses range from merchandise and gift cards to statement credits, cash and points. While credit union account reward programs use gift cards, cash or merchandise to attract consumers, new credit card account reward programs tend to feature points or statement credits.

The Chase Sapphire Preferred Card, for example, offers cardholders 50,000 bonus points after they spend $4,000 on purchases within the first three months of opening their account (worth $625 in travel when redeemed through the Chase Ultimate Rewards program). American Express’ Blue Cash Preferred Card offers $150 back in statement credits after cardholders spend $1,000 within three months of account opening.

Vantiv and Socratic’s research shows that consumers’ top reasons for signing up for a rewards program are the points they accumulate for free merchandise or travel and the automatic discounts they receive at the time of purchase. Free shipping is also a plus, especially for Gen X-ers and baby boomers. 

Equally as important as understanding why members sign up is knowing what dissuades potential rewards members from signing up for a rewards program.

For one, requiring too much spending to reach a higher status level is one of the leading reasons why members don’t sign up. Frustration with points or rewards that expire too quickly and restrictions that make it difficult to use the rewards are other obstacles to participation. 

When it comes to generational preferences, the tracking required for most reward programs puts off millennials more than other generations – not surprising considering their preference for digital offerings.

Influencing Behavior

Vantiv and Socratic’s research indicates that consumers’ shopping, dining and travel habits are directly influenced by the rewards programs they participate in. Rewards program membership also impacts how often consumers visit places where they can use their rewards and influences how much they spend. In general, the better the rewards, the bigger the spend.

So, Cashback or Points?

When it comes to credit card rewards programs, Vantiv’s survey indicates that cash is still king; 59% of rewards program participants prefer cashback, compared to 41% favoring points. Still, according to Mick Oppy, senior leader, FI Core Products at Vantiv, financial institutions need both. 

“Depending upon your institution, you have cardholders or members that lean one way or the other,” Oppy said. “You really need to have both, and make it flexible and simple to participate in a cashback or points program.”

Oppy notes that card rewards programs are more about building stickiness and relationships than they are about driving bottom line revenue. He emphasizes the importance of thinking about card rewards programs as a customer retention tool and top of wallet driver, and not just a revenue add-on.

“What you are trying to do is drive interactions with your card and institution,” Oppy said. “The more you are front and center in your cardholders’ or members’ minds, the more likely you are likely to retain that cardholder or member.” 

Traci Heekin is senior loyalty product manager at Vantiv. She can be reached at 866-622-2390 or [email protected].