Credit card rewards programs are having a moment. 84% of cardholders have at least one rewards card, and the share of consumers owning a rewards card increased by more than 10% during the pandemic.
Plus, a new report reveals some promising trends and untapped opportunities for credit card companies as consumer buying patterns and generational aspirations evolve.
Financial services firms moved quickly to reward the purchases of in-demand lifestyle products, such as food delivery, groceries, and streaming services, during the pandemic.
But there's still room to grow on the redemption side for these options, according to The State of Loyalty: 2022 Credit Card Rewards Report from loyalty solutions firm iSeatz.
Travel is still essential to reward program members. Rewards program bookings, which had dropped to nearly zero in 2020, increased across categories (flight, hotel, car rental) exponentially from April through November 2021, "in some cases increasing by triple-digit-percentages over the same period in 2019," the report says.
Bookings also stayed strong through the holidays with spend on travel up 55% year over year, according to the weekly Cardify consumer spending report. However, consumers have bigger appetites. They're eager for reward opportunities to keep pace with their lifestyles and preferences.
Lifestyle redemption is mostly MIA
An analysis of the travel and lifestyle reward redemption portfolios of twenty-seven credit card issuers is at the center of The State of Loyalty report. It demonstrates that most firms rely heavily on travel and haven't yet realized the potential of lifestyle or non-travel rewards options (except for gift cards).
Travel is so entrenched in loyalty programs that all twenty-seven banks listed in the report allow members to redeem points for flights via direct point redemption during checkout or by applying points toward a statement credit on qualifying purchases.
Twenty five companies provide hotel rooms and rental cars, 19 give cruises, and 12 offer tours and activities as redemption options.
Nevertheless, credit card rewards programs have some elbowroom in non-travel point redemption categories, the report says, even though there may be other benefits, such as a free DoorDash DashPass subscription or 10% discount on orders.
All 27 issuing firms give gift cards, ten partner with retailers, nine reward members with access to live events, four provide dining credits, and four offer food delivery. Five firms connect members with charitable giving opportunities, three provide wellness options, two give out gas, and one firm facilitates the purchase of carbon offsets.
Rewards beyond travel
"Fintech brands that provide purchasing versatility and flexible financing are seeing strong growth in the travel rewards space," the report says.
Thus, the popularity of Buy Now Pay Later and Pay with Points programs, cryptocurrency rewards, and digital wallets has introduced consumers to more straightforward ways to realize value from loyalty programs. It has also revealed redemption gaps associated with the lifestyle choices consumers increasingly desire.
One documented trend in consumer behavior is an affinity toward sustainability, especially for Millennials. But just one company the report tracked offered a sustainable redemption opportunity (carbon offsets), opening the door for financial services firms interested in appealing to a growing and influential segment of consumers.
The case for sustainable rewards
Sustainability isn't a new concept for companies with loyalty programs. Many airlines allow consumers to purchase carbon offsets when booking flights.
Hotels such as Hilton tout their sustainable practices, including using renewable energy sources and promoting low-carbon meal options. American Express has committed to reaching carbon neutrality years before the 2050 deadline of the Paris Climate Agreement. Could that same commitment to addressing climate change spill over into the redemption column of rewards programs?
COVID-19 has altered consumer thinking, Nielsen reports. "The pandemic has been a test for many brands to see if they can react in socially responsible and sustainable ways. By taking social responsibility seriously, brands can resonate with consumers and have an experience that is more authentic and memorable than an advertisement."
"Offering more sustainable products is a win-win-win for brands, consumers, and the planet. With travel surging and Millennials and younger travelers driving post-pandemic travel recovery, it's an ideal time for card issuers to differentiate themselves with creative, sustainable product integrations. Consumers want it, and they're willing to pay a premium for it. It's not just a good thing to do; it's also good for business," says iSeatz Founder and CEO Kenneth Purcell.
Research shows that customers are interested in sustainability. "Consumers are purchasing products that align with their personal values, especially sustainable products across categories," Nielsen says. Internal research commissioned by iSeatz found that younger travelers (age 18-34) and representing 40% of all travelers, are more likely to consider sustainability in their travel decisions.
In PwC's June 2021 Global Consumer Insights Pulse Survey, about half of respondents say they consciously consider factors related to sustainability when making purchasing decisions.
Not only are loyalty members more likely to value sustainability, but sustainable redemption opportunities check all the boxes for what members want now, according to the State of Loyalty report. Flexibility in how to spend (hence the popularity of BNPL), diverse opportunities for spending, and access to smaller, more attainable ("micro-burn") rewards in addition to saving for more significant travel redemptions are all trending.
Plus, sustainability doesn't have to only refer to carbon offsets, which are the low-hanging fruit. Savvy brands that choose to open up the redemption space to sustainable opportunities can expand the definition of sustainability to cover fair trade, social justice, local food, and regenerative travel. Current and future generations of loyalty program members want easier ways to reflect their world views.
What's possible in sustainable rewards
There are lots of ways to be creative about incorporating sustainability into existing rewards programs. Firms that build and manage loyalty booking programs can set rules to incentivize both sustainable purchases and rewards.
They could, for example, move electric vehicles (EVs) to the top of the list when a member books a rental car through their rewards program or offer a greater earned point value for an EV booking. On the redemption side, a rule change could permit a member to spend fewer points on booking an EV versus a gas-powered vehicle.
Credit card companies interested in incorporating sustainability into their redemption portfolios have many options. They could add more direct contributions to sustainability organizations, such as Carbonfund.org, ClimateCare, or The Nature Conservancy, or allow members to choose their own sustainability charity.
Points as sustainability currency could be used (possibly mixed with cash) for all types of purchases. Members could buy from sustainable retail partners like Patagonia, Toms, or Plant Faced Clothing, dine at farm-to-table restaurants, or adopt a forest.
The road to sustainable redemption
Loyalty brands already have access to partners to facilitate sustainable rewards redemption opportunities. Besides technology and eCommerce firms, destination marketing organizations that promote the appeal of a location can help develop regenerative travel destinations and itineraries.
Marketing and public relations firms can also assist with creative ways to infuse a brand's sustainability commitments into its rewards program.
Consumers need loyalty brands to be resourceful in meeting the demand for sustainable travel. Beyond donating to sustainable organizations or purchasing carbon offsets, it's simply not that easy for program members to travel sustainably on their own. Thus, there's a massive opportunity for rewards programs to benefit from making sustainable travel (at the very least) easier for members.
Many loyalty brands, including firms in the financial services sector, are invested in sustainability on the front end, some offering lower annual fees and extra reward points on certain purchases. However, as the State of Loyalty report confirms, fewer firms provide sustainable redemption opportunities on the back end.
Firms that diversify their redemption portfolios are more likely to have program members who are more engaged, spend more on their cards, and remain loyal to the program. A diverse loyalty program can become a differentiator and competitive advantage for firms whose products and price points are similar across competitors.
There's an opportunity for credit card companies focusing on sustainable rewards to be first to market. Brands benefit from it. Consumers want it. The planet needs it.
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