Trend: Upping the Ante with Rewards
|October 28, 2011||Filled under Credit Cards, News|
As the internal structures of popular banks and credit card giants change course, and as consumers rely more and more on new technology, look forward to a spike in rewards offers.
Same Old Thing
When it comes to the credit card business, size matters. Networks like Visa and MasterCard, that distribute their cards through banks, are able to maintain huge client bases by reaching out to those banks’ customers — by far the most effective method of distributing cards. On top of that, Visa and MasterCard imposed several restrictions on other networks, primarily American Express and Discover Financial, in order to keep that influence exclusive. A monopoly of the banking distribution channel forced competitors, to their probable dismay, to rely on sales teams to offer the cards to potential customers directly.
Pulling the Trigger
After a court ruled in 2004 that all third-party distribution channels were to be henceforth opened up to all networks — competition started to heat up. Well-ranked but less prominent players could now reach out to more third parties to issue more cards. Basically, everyone got a chance to start over, monopoly-free.
Adding Gadgets and a National Recession to the Pot
As electronic payment via smartphones and systems such as PayPal becomes more common, “cardholders” will be less inclined to stick with one credit card network, since it’ll be easy to switch payment methods if the payoff isn’t as great with their current company. Issuers are going to have to tempt their own customers to stay with more, and better, rewards offers. We’ve already seen a significant increase in the amount of cash back and travel rewards offered directly to card holders by many networks.
More over, experts say that the banking sector is currently facing a consolidation process that will increase concentration and put pressure on credit card networks to compete for market share through higher incentives, rebates and lower processing fees.
Who the next big player will be depends on some strategy, a little luck, and — here’s the great part for us — who can offer the best deal.
For more information, including a semi-bleak outlook for Visa in the coming months, please refer to Michael Kon’s article, “Credit Card Networks Face Unfavorable Competitive Dynamics.”