Loya lty, but not as we know it
The days of high points earning credit cards will end on July 1, 2017, says Tim Hughes, vice president of business development at Agoda, online accommodation reservation service. The Reserve Bank of Australia’s decision to put a limit on interchange fees is going to have a direct impact on a consumer’s pointsearning capacity. “Banks will be restricted on how much they can charge in merchant fee transactions and the consequence of that is the days of megapoints earning credit card ends on the July 1, 2017. It’s going to be a dramatic reduction,” Hughes says. Citibank was the first to make a move, advising customers its credit card rewards program would be amended from March next year due to the interchange rate change. Financial advisory firm Novantas predicts the move will see banks suffer a roughly 35% curtailment in debit interchange fee revenues.
I think Australia is going through one of the most dramatic transformations in loyalty since the introduction of the first card’ frequent flyer
“That’s hundreds of millions of dollars in frequent flyer purchases ripped out of the system, so that is going to change a lot about how consumers can earn points.” Hughes is jokingly dubbing the move the “Cardmageddon” – an Armageddon of loyalty points. “I think Australia is going through one of the most dramatic transformations in loyalty since the introduction of the first frequent flyer card,” he says. Interchange fees come into play when a consumer uses a credit card at a store which has a payment system set up by another bank. An interchange fee is paid from the store’s bank back to the bank that issued the credit card. The money raised from interchange fees is used to pay for the features of the credit card, including the reward points. As banks collect a smaller cut from transaction surcharges, there will be less money to purchase frequent flyer points. As the consumer’s ability to earn points easily through regular day-to-day transactions such as paying a bill decreases, Hughes says consumers will no longer be able to sit back and let their credit card do the work. He predicts it will shift the balance back between points and product and more of an emphasis will be placed on the quality of the items or services being purchased. “You’re not going to buy a product 100% just because of points and you’re not going to abandon points just for a product,” Hughes explains. As points become harder to come by, Hughes says consumers will need to find different ways to earn points, likely by selecting particular vendors and stores. Agoda has recently partnered with 32 programs on Pointsmax, which allows users to earn points toward their favourite loyalty program for every booking made through the website. Loyalty programs for which points can be earned include Velocity Frequent Flyer, Etihad Guest, Hawaiian Airlines, Delta Skymiles, American Airlines Aadvantage and more. The other element driving the transformation of loyalty is the intensification of the battle amongst the supermarkets and their affiliation to frequent flyer programs. “That battle has divided along very clear lines, with Qantas and Woolworths on one side and Coles/flybuys and Velocity on the other,” Hughes says. “This battleground is going to dominate the loyalty scheme for the next few years to come, I think you’re going to see enormous amounts of TV advertising and I expect to see all sorts of in-store activity as the world is divided along those two lines.” Looking into his crystal ball, Hughes forecasts banks will be forced to come up with new programs, airlines will think about new partnerships and he would like to believe loyalty would be seen to be more about the consumption and relationship with the product and less about the marketing channel a consumer came to. “This Cardmageddon is going to change a lot.”