Are Rewards Programs Rewarding?

Rewards is a primary driver of switching and selection in the credit card industry. This is especially true among Transactors,(1) who cite rewards as the primary reason for selecting their primary card, as well as the primary reason for leaving their previous credit card issuer. Notably, rewards has also become an important driver of selection and defection among Revolvers.(2)

According to the 2012 J.D. Power and Associates US Credit Card Satisfaction Study, during the past 3 years, the percentage of Revolvers who have shopped for a better rewards program has increased (27% vs. 25% in 2011 and 23% in 2010). Rewards programs are now the second-most-important reason why Revolvers have switched credit card issuers in 2012, behind only a low APR, which is down to 28% from 43% in 2010. As with switching, selection is also driven by rewards, as the rewards program is the primary reason Transactors selected their new card (72%) and the second-most-important reason Revolvers selected (33%), following a lower APR (37%).

So yes, rewards programs are rewarding for both customers and issuers!  In fact, overall satisfaction is significantly higher among customers who have a rewards program than among those who do not have a rewards program (770 vs. 700, respectively). More importantly, rewards programs have a positive impact on customer advocacy and retention, as customers with rewards are considerably more likely to say they “definitely will” recommend their credit card issuer, compared to those without a rewards program (30% vs. 18%, respectively), and are considerably less likely to switch primary credit card issuers (31% vs. 23% “definitely will not” switch).

Rewards programs also have a positive impact on both customer spend and usage. On average, customers with rewards programs spend in excess of three times more per month on their primary card and conduct nearly three times the number of transactions per month than do those without a rewards programs.

2012 J.D. Power and Associates U.S. Credit Card Custom Satisfaction Study©.  The McGraw-Hill Companies, Inc. All Rights Reserved.

Make sure they Understand the program

Not clearly communicating a card’s rewards program may have a larger detrimental impact on satisfaction vs. not offering a rewards program at all. Satisfaction is lower among customers who say they do “not at all” understand how rewards are earned than among those who do not have a rewards program associated with their card. Moreover, satisfaction among customers who either “partially” or do “not at all” understand how to redeem rewards is lower than among those without a rewards program (692 vs. 700, respectively). Consequently, it is critical that customers are aware of how rewards are earned and even more critical that they understand how rewards are redeemed. ©

The Bottom Line:

  • Rewards during the past 3 years has become a main driver of selection and satisfaction among Revolvers, who historically have selected cards based on APR.
  • The root cause of  reward dissatisfaction is a lack of clarity regarding what rewards can be earned…..which is driven by vague and confusing messaging on billing statements and online Web portals.
  • Keep rewards programs simple, display rewards earned, provide information on reward promotions and special offers; and implement and/or promote rewards tracking tools via the Web portal.
  • When there are different rates at which rewards are accumulated based on purchase categories,  clearly communicate them to customers via billing statements, website, and email.

FOR MORE INFO regarding our 2012 US Credit Card Customer Satisfaction Study, please contact Holly Zagresky at (248) 680-6319 or via email at Holly_Zagresky@jdpa.com

1 Transactors are customers who always or usually pay their entire credit card balance each month.
2 Revolvers are customers who typically pay less than their total monthly balance.
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Future Trends in Credit Card Customer Satisfaction

According to our 2012 U.S. Credit Card Satisfaction Study released late last week, the competitive environment is stabilizing and credit card issuers are making substantial strides in improving areas that were previously problematic—particularly communication and problem resolution.  So, what comes next? How are customer expectations changing, and what are the implications for issuers? Where should issuers focus their efforts in the future?

1.  Digital channels and self-service

The shift to online use and away from phone and mail continues. Customers are performing more routine activities online, such as reward-related activities, and are contacting call centers less often with questions or requests and are beginning to seek answers via self-serve channels, such as online. In fact, data from our 2012 Credit Card Satisfaction Study indicates that customers are attempting to resolve problems on their own and are moving away from contacting the call center for simple problems, but contacting the call center to deal with more complex issues.

 

2012 J.D. Power and Associates U.S. Credit Card Custom Satisfaction Study©.  The McGraw-Hill Companies, Inc. All Rights Reserved.

In addition, 7% of customers indicate using a mobile device to interact with their credit card issuer, and 5% have used social media for service transactions.  Another emerging trend related to the increased use of digital channels for routine transactions and greater reliance on self-service tools is that the issues about which customers contact the call center are becoming increasingly complex. This has important implications for the role of the call center and the requirements for call center representatives.

THE POINT:  Not only will issuers need to continue to commit resources to online as the workhorse for routine transactions, but they will also need to simultaneously invest in and develop these emerging online channels since customers prefer this method of communication above all others.  Knowledgeable employees that are able handle complex problems are a necessity.

2.  Rewards and Communication

An examination of recent success in the market, as defined by the highest-performing issuers, American Express and Discover Card, and the most improved issuers, Chase and Barclaycard, shows that two drivers of advantage in the past—rewards programs and customer communications—will continue to provide an expanding competitive edge in the future. Continue reading ›

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Two Research Insights Too Big To Miss!

2012 Primary Mortgage Servicer Satisfaction Study

Increasing governmental oversight, the credit crisis, the overall state of the economy, and negative media coverage have created a challenging environment for the mortgage servicing industry. To help mitigate these negative effects, mortgage servicers need to understand and apply key best practices that result in the highest levels of customer satisfaction.

Join us for the 2012 Primary Mortgage Servicer Satisfaction Study webcast during which we will explore the following:

  • How customer’s perceptions of mortgage servicers have changed since 2011
  • How the latest regulations and trends are impacting the mortgage servicing industry
  • Which factors are having the biggest impact on satisfaction of mortgage servicers’ customers

Complementary Webcast Details:

Date:  Thursday, July 26 – 2:00 PM EST

____________________________________________________________________

2012 Credit Card Satisfaction Study Findings

In addition to preliminary findings from the study, we will also present information from the following new sections:

  • Satisfaction with new card application and activation
  • Mobile and social media interactions
  • Expanded diagnostics around online interactions

NEW! Credit Card Website Evaluation Study

Given that online interactions are the single most important factor affecting overall customer satisfaction, we will discuss the following:

  • The interactive surveying approach
  • The comprehensive task set covering the full range of credit card online transactions

NEW! Small Business Credit Card Satisfaction Study

There is evidence that satisfaction rankings of small business card issuers will fall out differently than the traditional consumer rankings. During this webcast, we will:

  • Share results from the 2011 Small Business Banking Satisfaction Study
  • Present a proposal for a new study, the Small Business Credit Card Satisfaction Study, which will help credit card issuers understand the drivers of small business customer satisfaction and in turn improve ROI for this key customer segment.

Complementary Webcast Details

Date:  Tuesday, July 31 – 2:00 PM EST

 

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How Can Credit Card Issuers Keep the CFPB at Bay?

With the Consumer Financial Protection Bureau expanding oversight beyond credit cards into other areas of financial services such as Mortgages, a reasonable question arises as to what bankers can do to keep the CFPB from becoming involved with a bank’s customers. The bureau represents an alternative to which over 9,000 consumers have already turned with complaints or problems, based on a co-presentation I gave with Marla Blow of the CFPB at last week’s Card Payments Forum. Ms. Blow described how the Bureau operates in expeditiously cataloguing, communicating and tracking problems in coordination with credit card issuers.

It is a laudable objective on behalf of cardholders, but what if anything can the issuers be doing themselves to avoid the involvement of the CFPB in the first place? In the work I did preparing the presentation for the Forum and the findings from J.D. Power’s 2011 Credit Card Satisfaction Study, issuers can and should do three things to help keep the regulators at the CFPB at bay when addressing cardholders’ complaints.

1.  Educate customers to avoid problems in the first place

Customer education through transparent communication is one of the best ways to reduce a problem or complaint from arising in the first place! J.D. Power’s 2011 Card Study showed that both Transactors (who pay off balances each month) and Revolvers (those who carry balances) benefit from better understanding of their credit card terms. When these card holders completely understand their terms, only 8-9% report having had a problem or issue over the last 12 months. Compare that incidence rate to cardholders who do not understand their terms, where 12% of Transactors and a whopping 21% of Revolvers had problems when they lack understanding of their terms.

2.  Empower frontline staff to enable First Contact Resolution

The ability to address and resolve customer issues at the initial point of contact goes great strides to satisfying customers and Continue reading ›

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Key Banking Topics in Social Media

The challenges confronting banks that seek to bolster their bottom-line profitability, retain customers, and stay competitive in the marketplace are formidable. Research conducted by J.D. Power‘s Consumer Insight and Strategies Group to track social media activity regarding banking issues between April 2011 and March 2012 finds that:

  • Online sentiment was distinctly negative not only regarding fees, but also for bank technology
  • Complaints associated with website or online issues were a major source of discontent in technology-related messages

With customer feedback on critical topics discussed online going from technology to fees and service, banks should see the handwriting on the wall and provide an appropriate outlet for these customers, along with an acknowledgement and guidance for direction for immediate response.

Source: 2012 J.D. Power U.S. Retail Banking Satisfaction Study

Retail Banks aren’t the only ones that have an opportunity to engage with the vocal online customer. Credit card holders appear to be even more outspoken onlinne, but card issuers appear to have learned this a bit faster than their Retail Banking peers. Continue reading ›

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…But Will Cardholders Be Any Smarter?

The CARD Act of 2009 has been in force for over two years, but it may be too early to celebrate. While the Act resulted in several changes to card terms, such as interest rates, late fees and payment dates, there is clearly still room for improvement. In a recent press release, Raj Date (Special Advisor to the Treasury Secretary over the Consumer Financial Protection Bureau) noted, “Credit cards can be complicated, with many moving parts that impact the cost to consumers. When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works – it’s easy to get confused. With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them.”

So the newest emphasis by the government is to simplify cardholder agreements to make them clearer and easier to understand. This effort isn’t totally unwarranted, however. While J.D. Power’s 2011 Credit Card Satisfaction Study showed a 20 point rise in Credit Card Term satisfaction (on a 1,000-point scale), it is still very important that customers have a complete understanding of their terms, and that simply isn’t happening. Only 35% of customers, roughly 1 out of 3, indicated they ‘completely’ understood the terms for which they are held accountable regarding significant amounts of debt obligation. Customers who lack this level of comprehension have greater incidence of problems and complaints, as well as a higher level of general attrition and card-switching behavior.

As a result, the efforts of the CFPB to direct revisions of term agreements could be a positive step in the right direction but will it help them take control of their cards? More importantly, will they have the knowledge they need to ensure their current credit cards meet their needs? After all, even a revised agreement is no better than the old ones if no one reads them or knows how to evaluate their underlying value. J.D. Power took the insights from this year’s Credit Card Study and compiled four critical recommendations for all cardholders to take to heart in assessing their current or future cards.

4 ACTION ITEMS EVERY CARDHOLDER NEEDS TO DO

1.  Know what kind of credit card user you are and choose a card that fits your habits. Do you tend to carry a balance over time (revolvers) or pay it off every month (transactors)? Revolvers should look for the most competitive credit terms on balances and payments instead of an attractive rewards program. Transactors, however, should look at rewards programs that make it easy to both earn and redeem rewards. Both types of customers should search for programs that provide the best overall benefits and services for their needs.

2.  Do your homework online, in person and over the phone. Ask questions and read materials about the card program you are interested in. Do not overlook online blogs and websites, including JDPower.com, that objectively evaluate card issuers and program terms and include customer feedback.

3.  Explore what other customer tools and resources are available. Many issuers now offer a wide range of online tools for financial planning and debt management, as well as payment and purchase tracking. Some also offer credit counseling, sophisticated mobile applications, online chat and other forms of real-time assistance to fit their customers’ lifestyles.

4.  Do not be afraid to test customer service before applying. While the Internet continues to be a critical interaction channel for credit card customer service, talking to agents via the phone is still the primary channel for addressing questions and problems. Before you apply, call the customer service line to see how user-friendly and helpful the service is.

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Quick Tips for Enganging With Credit Card Customers Online

Currently, 39% of customers who use social media for credit card purposes report discussing their experience—both positive and negative experiences (22% and 12%, respectively)—or informing their financial institution about a customer service issue (16%). Credit card customers are more likely to use social media to a share an experience or post a customer service issue than do retail banking customers.

The following graph shows which card issuer customers are most willing to read and share their experiences through social media in the future.

  • The top two issuers whose customers have the most interest in using social media as a service platform don’t offer any links to these services on their home page
  • Among the 10 issuers included in the study, only three have social media links on their website
 Source: J.D. Power and Associates 2011 Credit Card Satisfaction Study

Here are a few tips to help maximize the social media experience with credit card customers:

Let Them Find You – Issuers with customers who have an interest in communicating through social media should include links to their home pages. This is a growth opportunity for issuers to interact with and satisfy their customers on yet another subset of the online platform.  Make it easy for customers to find you and interact with you.

Prepare to Engage – Issuers should be mindful that once a customer is engaged or receives a response via social media, they cannot control where the conversation goes. Issuers should therefore be prepared for any situation and realize that customers could take the conversation in a completely different direction than what might have been intended.

It’s a Two-Way Street – Issuers should be wary about trying to influence or change a customer’s opinion. Social media is a tool that allows for two-way conversations, and may result in the customer and issuer agreeing to disagree.

Be Real – Honesty, transparency, and accountability are critical in the social media space; however, being in a highly regulated industry, issuers need to find a balance between this and the constraints of imposed regulations.  Be aware of what they are, but don’t allow them to limit or prevent dialogue and responses.

Talk and Tell – Don’t just sell.  Social media should not be used solely as a sales tool

 

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What Will 2012 Bring for the Banking Industry?

Original post by Banking.com Staff on December 21, 2011

As we wrap up 2011 and head into the New Year, we asked some of our readers to share their thoughts on the banking industry in 2012. This past year has been filled with mobile and tablet innovation, but will that carry on in 2012? How will social media impact financial institutions in the next year? Here’s what the experts are saying:

  • “Of those banks that are currently using social media as a channel to communicate with their customers, much of the focus has been on appealing to Gen X and Gen Y customers,” says Karen Licker, Financial Consultant & Social Banker (Independent) for J.D. Power and Associates. “Clearly Gen X and Gen Y customers comprise the majority of those subscribing to and using social media, but the number of Pre-Boomers and Boomers who do so as well is growing at a considerable rate. In addition, Based on J.D. Power’s 2011 Retail Satisfaction Survey, nearly one in five Gen X and Gen Y customers state that they are likely to utilize social media for banking-related topics in the future, and more than one in 10 Pre-Boomer and Boomer customers are likely to do the same. Banks should be prepared to interact with and satisfy the growing Pre-Boomer and Boomer customers too!”

© 2011 J.D. Power and Associates Retail Banking Satisfaction Study, The McGraw-Hill Companies, Inc. All Rights Reserved.
  • “2012 will finally see the tipping point for mobile banking. Mobile moves beyond today’s limited functionality and starts to become the primary remote customer channel. Look for some interesting corporate bedfellows to emerge as the financial services ecosystem starts validating mobile payment business models and the importance of controlling new methods of money transfers and payments. We will see continued disruption in the space, as it relates to payments, security protocols, features like proximity rewards, integrated p2p and a2a with social tether, account opening, and more. Expect feature rich device agnostic applications that enhance usability and user experience across a range of mobile and tablet devices.” Bradley G. Leimer, Vice President, Online and Mobile Strategy at Mechanics Bank (@leimer)
  • “2012 will be the year of improved customer lifecycle management. With the fees and interest margins associated with accounts falling, there is a need to acquire a new customer more efficiently, onboard each new customer more effectively, achieve a higher level of relationship engagement and gain a greater share of wallet. Financial organizations will also need to focus more resources on retaining current clients since replacing these households has become so expensive.” Jim Marous, Senior Director, Marketing Services, Harland Clarke (@JimMarous)
  • “In the credit card space, service alerts have steadily grown in importance over the last few years,” says Michael Beird, Director of Banking Services for J.D. Power and Associates. “Based on J.D. Power’s 2011 Credit Card Satisfaction Study, cardholder satisfaction increases by 98 index points (on a 1,000-point scale) when service alerts are offered and used. Email (80%) is the most common form of service alert, and is followed by phone calls (23%); text messages (15%); and secure online messages (8%). Interestingly, secure online messaging is the lowest-used service alert feature, but it results in the highest satisfaction (783). While issuers still have to do a better job of informing their customers about the availability of the service, it’s clear that customers are seeking ongoing and proactive communication from their banks. Informing customers of status issues and concerns in real time, via text, email or secure online, is an emerging service that will likely grow exponentially in the year ahead.”

© 2011 J.D. Power and Associates Credit Card Satisfaction Study, The McGraw-Hill Companies, Inc. All Rights Reserved.

What do you think 2012 will bring for the banking and financial services industries? Leave us a comment below or Tweet @bankingdotcom or @JDPowerBanking.

Banking.com is blog is run by Intuit Financial Services, and provides access to insights from industry experts as well as resources for tapping into important customer segments.  Visit their homepage at www.banking2020.com or on Twitter at @bankingdotcom.

 

 

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