The Benefits of Loyalty Points as a Payment Option

Card issuers turn to pay-with-points solutions to keep customers loyal for the long term

?As credit card issuers look to retain customers, their attention is turning to the kinds of rewards that customers value. But beyond the types of rewards themselves – be it travel rewards, cash back, product discounts, or more – the ease with which reward points can be redeemed is a critical driver in determining a customer’s long-term lifetime value.

?The knock-on effect of the growth of digital currencies across the financial services ecosystem is the pressure that card issuers face to make their reward programs more liquid. Customers don’t want loyalty programs that make point redemption difficult to navigate, and they want point redemption to be as easy as sending a friend a money transfer on Venmo or Zelle.

?Card issuers are now acknowledging the connection between rewards liquidity and customer retention. In a survey of 26 credit card issuers conducted by The Wise Marketer? in July 2021, more than 90% said increased ease of redemption was a key benefit for cardholders, and 95% said the ability to pay with points would allow for stronger customer retention and would give their brands a positioning edge.

?Customers are asking for pay-with-points capabilities, and merchants are poised to respond.

In that same survey, brands indicated that customers are showing interest in pay-with-points (PWP) solutions. Of the companies polled, 70% said they had seen interest in this feature. In addition, PWP tools offer much needed flexibility for consumers, with nearly 80% of card issuers agreeing that PWP would enable customers to redeem rewards before they reach a traditional redemption milestone.

?Customers want to use points to buy goods at checkout, alongside other payment methods.

A growing number of consumers want the option of using their points at physical and digital points of sale. In a survey of 200 U.S. consumers carried out by The Wise Marketer and Loyalty Academy, respondents were asked how likely they would use a PWP solution. The greatest proportion of survey participants – 70% –?said they would be “extremely likely” or “likely” to use this feature.

?Use of rewards points at checkout is also a retention driver, the customer survey found. Asked how they would evaluate a card issuer that offered this service, 50% said they would “stay with that credit card and bank rather than switch to another.”

?Pay-with-points solutions can increase a brand’s wallet share among consumers.

More than 70% of issuers surveyed by The Wise Marketer cited “digital wallet” as a key opportunity in payments and loyalty coming out of the COVID-19 pandemic. If card issuers learned anything from more than a year of the pandemic, making it easier for customers to use rewards to pay for what they need is a critical loyalty driver. Forward-thinking brands jumped to this challenge early on by making it easy to redeem their points for critical day-to-day needs.

?PayPal, for example, made it easier for its customers to use their reward points for emergency needs – a powerful loyalty driver to grow client relationships.

?"More and more people across the country are turning to their credit card rewards as a helpful and easy way to make their dollars go further," Jill Cress, PayPal’s vice president of global brand, said . “And in the current environment, two-thirds of Americans (66%) now view these rewards balances as a way to buy the things they need, such as groceries and other essentials.”

?PayPal?and other leading brands like Citi, Amazon, and American Express led the way in making restrictive, closed-loop points redemption frameworks more liquid as a way to move up the wallet share ladder to achieve longer-term customer retention.

?Customers also rank PWP solutions highly when compared to other payment methods that grew in addition during the pandemic, including digital wallets, contactless payments and cryptocurrencies. In fact, in The Wise Marketer-Loyalty Academy customer survey, 46% of consumers polled said they found “using points for online purchases” as attractive – ahead of digital wallets, earning special discounts from select merchants, and using cryptocurrencies.

?Redemption equals ongoing engagement.

Brands know that their customers are more likely to interact with loyalty programs when the rewards are easily redeemed. Asked why consumers engage with loyalty programs, the top reason – cited by 44% of respondents – was the ease and speed of redeeming points. When customers spend reward points the way they want, they gain a positive association with the brand that can foster a longer-term relationship.

?The bottom line: Paying with points aligns with changing consumer behavior, and incorporating it is an opportunity to build on digital-first payment behaviors that took root during the pandemic.

These new research findings show a body of qualitative data indicating a groundswell of interest in PWP capabilities from both card issuers and cardholders. With a growing number of loyalty programs planning or considering to roll out PWP solutions, brands are seizing valuable opportunities coming out of the pandemic when digital payments options of a variety of types skyrocketed in usage.