Credit card reward programs becoming less attractive

Now day’s banks at the time of issuing credit cards are taking cautions and mostly issuing premium category credit cards to the premium segment of the society in order to come out of huge credit losses. Similarly banks are also planning to cut down the rewards they give to credit card holders to reduce credit losses. Therefore banks are making it more expensive and giving less attractive gifts on redemption of reward points. It is believed this can further get worse ahead of possible legislation to reduce so-called interchange rates, the fees banks charge to merchants.

Analysts’ points out banks use income from the fees to finance their rewards, thus any reduction in those charges will cut loyalty programs. This means the customers will have to use their cards frequently to earn the points. Last year the banks increased interchange fees to 14 percent to about $48 billion, ranging from 1.6 percent to more than two percent of total purchases.
In recent years credit card companies like American Express, JPMorgan Chase and Citigroup had earned hefty profits due to an explosion in credit, but now they are running in lose in billions as debt-burdened Americans lose jobs and default on loan payments. According to analysts credit card industry will only be able to make firm standing by 2011.

Previously in this year, Citigroup customized its “Thank You” rewards program in which many more points were required to redeem the reward. While JPMorgan, had limited the spending categories in which customers received cash back on Chase Freedom cards. According to analysts American Express flagship Membership Rewards program is like a magnet for customers in case any cut done in the program can lower the customer’s interest in the company’s cards and upset revenue earned. As most of the global banks are making ways for the new reward systems hence Indian banks might soon follow the suit.