Credit card rewards to be less lucrative

By siliconindia   |   Tuesday, 07 July 2009, 21:32 IST   |    1 Comments
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Credit card rewards to be less lucrative
Bangalore: The credit card companies are planning to reduce the rewards it gives to its customers in an attempt to come out of the huge credit losses. Card issuers are making it more expensive and less attractive to redeem rewards. And it could get worse ahead of possible legislation to reduce so-called interchange rates, the fees banks charge to merchants. Issuers use the proceeds from the fees to finance their rewards, so any cut in those charges would trim loyalty programs, analysts said. For customers, that means having to use their cards more often to earn the points. Last year, interchange fees rose 14 percent to about $48 billion, ranging from 1.6 percent to more than two percent of total purchases. Credit card companies like American Express, JPMorgan Chase and Citigroup enjoyed hefty profits in recent years due to an explosion in credit, but they are now losing billions as debt-burdened Americans lose jobs and default on loan payments. Analysts estimate that this industry will not make money until 2011. Earlier this year, Citigroup modified its "Thank You" rewards program to require many more points for redeeming the reward. JPMorgan, meanwhile, has limited the spending categories from which customers receive cash back on Chase Freedom cards. Analysts feel that American Express' flagship Membership Rewards program is a magnet for customers, so any cut in the program could dull interest in the company's cards and hurt revenue. With these global banks paving the way for the new reward systems, Indian banks may soon follow suit.

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