Bonus points and miles

One of the most popular parts of having a credit card is the rewards that can be earned by using it. Whether it is airline miles, points or just simply cash back some consumers are addicted to acquiring them. When choosing which credit card that you personally use or that you use for your business the rewards are often time what clinches the decision. Rewards programs are not new and have actually been around over a century but they get more competitive every year.

Today just about any competitive industry offers some sort of rewards program, whether it be your local supermarket or your local convenience store. These date to 1896 when Thomas Sperry & Shelley Hutchinson (S&H) Green Stamps could be earned by consumers at participating retailers and later redeemed for something out of the S&H catalog or from a local affiliated shop. A consumer had to collect enough stamps to fill a book (about 1,200 of them) and could redeem those books for products. These were popular from the 1930s through the 1960s and also expanded to Europe but began to lose popularity with the economic recessions in the 1970s and the company eventually was sold in 1999. The company shut its doors in 2006.

In the ultra-competitive world of air travel many airlines needed something to stand out from their competitors and thus got into the game offering free airline miles to their loyal travelers. United was the first to offer such a program in 1972 with nearly every other major airline doing the same by 1982. It should be no surprise that airline miles would become one of the most popular rewards program in the late 1980s when credit cards began offering loyalty programs as well.

The first credit card to offer a rewards program was the AT&T Universal Card which provided cash back as credit to their customers’ phone bills. Discover pioneered the “cash back” reward in 1986 and was the first major processor to offer a rewards program which enhanced its market share considerably. With the credit card market becoming extremely competitive Visa, MasterCard and American Express were quick to seize onto this idea and ran with it. Individual companies had their own cards issued through one of the main processors that offered discounts on their products, like a lower interest rate or a discount on a purchase. In a recent survey 32% of consumers said the most important factor when choosing a credit card was the rewards program.

So, who pays for all of this? As a merchant you hopefully know the answer: You do. Rewards programs are figured into the interchange fee that you pay every time a card is swiped or dipped. Much of the revenue generated by the interchange fees and the interest generated from those fees go towards funding the rewards programs. So, that flight a buddy of yours got with his airline miles may not have cost him anything but it may have cost you something. Remember that the next time you sit back and have a mai tai on the beach after using your miles to get a flight to paradise. YOU deserve it.