What’s next for co-branded and affinity credit cards?

For more insights from Co-branded and Affinity Credit Cards in the U.S. visit the report product page here.

With credit cards offering ever richer rewards tier architectures (is 3-2-1 already passé?), many wonder whether the card industry is trading rewards for lower profit margins. So far, we think this concern is overblown: rewards costs are indeed rising; but as they move toward lower-cost digital channels, card member acquisition and communication expenses are falling.

But acquisition means little when card members find that the rewards they were promised are lost in translation when it comes time to redeem them. As word to the wise, according to data found in our Co-branded and Affinity Credit Cards in the U.S. report, some 55% of co-branded cardholders citing a card rewards program as a co-branded card sign-up influencer say that would be strongly motivated to do so if the program had fair and simple methods to use rewards points.

Over the past several years, credit cards have come a long, long way in the transparency department, and some card programs (Capital One is an obvious example) stand out for their transparency across the board. But we are surprised to find so many top-tier cobrand card programs employing rewards usage methods that hide what a rewards point is actually worth, from booking hotel stays to using points at retail partners to using points to purchase merchandise.

Do most rewards card users know these methods can yield different degrees of value? Do they care? We bet many of those who affirmatory answered the question above do. Maybe they feel empowered by out-gaming their issuer, using research sites to advantage; maybe, in light of the wealth of choices that these redemption options provide, they don’t hold the relative loss of value against their card program; maybe they don’t like feeling duped, and stop using the card.

While this third choice is clearly the worst case scenario, all three can cause the cardholder to question their loyalty to the card. So, while these rewards redemption models may help reduce issuers’ actual cost of rewards, issuers better tread very carefully. Positive outreach about other card benefits, proactive communication reminding cardholders to use their rewards-and even showing them how-can help build trust. And in some cases, letting customers know that actual values may differ may actually increase loyalty. The savviest ones already know it anyway, don’t they?