Credit Card Rewards Battle Continues as Customers Seek Better Programs

As credit card customers drive up credit card debt to an all-time high, more of them are switching cards for a better rewards program, according to the J.D. Power 2018 Credit Card Satisfaction Study, released today. The study finds that 47% of credit card customers who switched to a new card within the past 12 months did so for a better rewards program.

“Competition is fierce among credit card issuers to provide ever-richer rewards,” said Jim Miller, Senior Director of the Banking Practice at J.D. Power. “Banks are experiencing record expenses related to the increasing rate of customers redeeming their rewards. To manage profitability, some issuers have eliminated or reduced card benefits. The key for issuers in this highly competitive environment is to make sure they are offering the types of benefits that resonate with current and potential customers. Most customers are aware of only a handful of benefits and use just nearly two of them, so there is room to simplify the benefits offered. It is better to have customers fully understand their benefits rather than provide benefits of which customers aren’t even aware.”

Following are some key findings of the 2018 study:

• Reward value directly linked to satisfaction: The reward amount a customer earns per dollar spent on a credit card is the greatest driver of satisfaction with the rewards program. Overall satisfaction scores among credit card customers with the highest level of satisfaction with amount of rewards earned per dollar spent is 170 points higher (on a 1,000-point scale) than among credit card customers with average satisfaction. Customers with the highest satisfaction are also the least likely to switch card companies.

• More than one-third of credit card customers do not understand rewards programs: Overall satisfaction scores among credit card customers who fully understand how to earn and redeem rewards is 101 points higher than among those who do not fully understand their rewards programs. They also spend an average of $307 more per month than those who do not fully understand their rewards ($1,291 vs. $984, respectively).  Despite this, 36% of credit card customers say they do not fully understand the rewards available to them.

• Free credit scores emerge as a valuable perk: One of the most popular benefits to emerge in the past few years is a free FICO or credit score. Satisfaction, when customers receive a free FICO/credit score with their card, is 43 points higher than among those customers who do not.

• Digital channel plays a key role: Use of a credit card mobile app is associated with a 25-point increase in customer satisfaction, although just 39% of customers are currently utilizing credit card mobile apps. Among those who do use mobile apps, the most frequently used features are viewing transactions/account information and making payments.

• Older customers more satisfied after transitioning to digital billing: Although younger customers (under age 40) have been quicker to adopt digital billing, the effect of switching from paper to digital billing is most pronounced in the over-40 population. Among customers 40 years old and older, satisfaction increases 23 points when customers switch from a traditional paper bill to digital billing. That differential is just 1 point in the under-40 population.