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  5. Making Loyalty Pay: The Relationship Between Rewards and Payments

Making Loyalty Pay: The Relationship Between Rewards and Payments

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7 December 2006

Abstract

San Francisco, CA, USA December 7, 2006

Alternatives to credit card reward programs are increasing as a result of new payment technologies and business models.

Credit card issuers have been the main beneficiaries of reward programs, while merchant loyalty programs have failed abysmally. However, new technology and business models will allow merchants and payment providers to benefit from rewards programs, according to the new Celent report, Making Loyalty Pay: Examining the Relationship Between Rewards and Payments.

New technology and business models are shifting the reward and payments landscape and will alter the traditional relationship among payment providers, merchants, and technology providers. Online, mobile, and biometric payments will compete with credit cards and use rewards programs to build loyalty. Coalition-oriented and merchant-sponsored payment networks are models that will help merchants benefit from rewards programs. These new technologies and business models may benefit merchants, technology providers, and payment providers while minimizing issuer payment revenue cannibalization that comes about as consumers shift their payment and reward preferences.

"While issuer rewards programs have been quite successful in achieving their objectives, most merchant loyalty programs, particularly grocers, convenience stores, and gas stations, have failed miserably in their loyalty objectives," says Dan Schatt, author of the report and senior analyst. "Increasingly, new business models and technology are being introduced that will expand the loyalty pie and fuse issuer and merchant interests and expand the pie for all parties."

In this report, Celent profiles companies and technology initiatives best positioned to deliver rewards programs to further the loyalty objectives of merchants and payment providers. Celent details credit and debit card rewards programs that are most prevalent in today's market and provides a glimpse as to how merchants and payments providers will position rewards programs in the next few years.

The 59-page report contains 33 figures and eight tables. A table of contents is available online.

Members of Celent's Retail Banking research services can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.

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