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CU System
Paper outlines three lessons from card rewards
DES MOINES, Iowa (9/14/12)--A new white paper issued by the Members Group (TMG) details three truths of credit and debit card rewards programs.

"Creating Engagement and Loyalty: How to Reward Yourself and Your Cardholders" is written to provide both the card processor and the issuer perspectives. Matt Flynn, director of client relations for card processor TMG, and Jeff Russell, president/CEO of credit card agent-issuer TMG Financial Services (TMGFS), share insights on why rewards programs matter in today's competitive card environment.

TMG and TMGFS work with community financial institutions to enhance portfolio performance with rewards programs. Collectively, the companies have learned three lessons:

  1. Rewards elevate the competitive nature of a card offering, leveling the playing field between community financial institutions and the major card issuers with which they compete.
  1. Rewards, when tailored for a cardholder base, drive customer engagement and loyalty.
  1. Card rewards can provide a healthy return on investment.
The paper also offers suggestions for lowering the costs of a rewards program. The tactics include comprehensive vendor due diligence, flexible points schedules, less costly marketing programs and a merchant-funded option.

A strategy for programs targeted to different consumer segments inside the same portfolio is detailed in the paper. The authors also describe how different cardholders place different values on reward offerings.

The goal is to successfully segment cardholders, offering each group the most pertinent and compelling rewards possible. The paper identifies four cardholder segments:

  • Transactor: The cardholder makes purchases but pays off the balance most months.
  • Revolver: The cardholder carries a balance from month to month while continuing to make purchases.
  • Pay-Down: The cardholder is actively paying down a balance by making regular, over-minimum payments each month, but typically is not making purchases.
  • Inactive: The account has been dormant--no payments, no finance charges, no transactions, no balance--for six months.
"A successful cost-control strategy for issuers is portfolio segmentation," the authors wrote. "By only offering rewards to those cardholders who truly value perks (and whose transaction behavior reflects that value system), issuers can save significant per-account costs."

To download the free paper, use the link.
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