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Bank Bigwig Says Credit Card Rewards are Doomed

[Tuesday, December 3rd, 2013]

The cash back bonus you just traded in for a gift card to your favorite bookstore could soon be a thing of the past. At least, that’s what one industry pundit is saying.

Brett King, the CEO of Moven Bank, thinks that credit card rewards are on their way out. He puts the blame on smartphones, saying that they will make reward redemption so easy that everyone will take advantage of their rewards and they will no longer be profitable for credit card issuers to offer.

King holds that the only reason credit card issuers can afford to offer such generous rewards is that most customers do not actually bother to redeem them. When more people do, banks will not make a profit and will cease their rewards programs. He predicts this will happen in the next three to four years.

Not so fast, say other industry experts

Mercator Advisory Group, a market analysis firm that conducts extensive credit card and banking industry research, does not agree with King’s conclusions. In fact, they believe the mobile industry will be good for credit card rewards. They agree that smartphones will make rewards easier than ever to redeem, and that customers will likely use their rewards more than they did, pre-smartphone era. However, they think this can only be good for the credit card industry.

Mercator points out that credit card rewards are a major attraction for customers, and credit card companies will be hard-pressed to win new customers over without offering great rewards programs. They say that maximizing reward redemption is good for business.

The biggest rewards

Travel credit cards, King points out, offer some of the biggest customer rewards. With free flights, free hotel stays, upgrades and free bag check, frequent flyers do quite well using their credit card rewards.

King says he worked with Cathay Pacific and the Asia Miles program in the early 2000’s and found that the company tried to minimize reward redemption in order to control costs. His thesis that smartphones will kill credit card rewards is largely based on his experience with travel credit cards over ten years ago.

He also points out that over 60% of credit cards today are linked with a rewards program of some type—whether it’s miles, points or cash back. Time will tell whether King or Mercator is right about credit card rewards and smartphones.

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