How do card companies attract customers with credit card rewards?


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How do card companies attract customers with credit card rewards?

Updated: November 14, 2018

The content is accurate at the time of publication and is subject to change.

Credit card companies have a lot of ways and means to entice customers and get them to open new accounts.  Reward programs are also one way of ensuring that the customers remain loyal to their card companies. Sometimes, people end up charging so much on their reward credit cards that they actually end up paying huge sums of money by way of interest as well as fees for the purchases they make. For these people credit card rewards are not free gifts in the real sense.

About a couple of years ago, credit card rewards programs were something that was unheard of. However, as the competition started increasing card companies started competing for business, and thereby ended up making these offers to their customers.  Card companies found ways and means to attract customers not just with the low interest rates, but also with additional offers of rewards, and thereby managed to attract in new customers. As this strategy gained popularity and became a successful business model other companies joined in, and promoted their own reward programs.

The basic principle behind the card rewards program is the rewards that people get for every dollar they charge. For instance, there are air miles to be earned, cash back or gift cards, etc. Ever since these rewards gained popularity companies have started churning out various reward programs to meet the wants and needs of their customers.  For instance, there is a credit card rewards program that offers lottery tickets as part of the reward programs (for each dollar spent on the card, there is one lottery ticket). These can seem exciting for those who love to play the lottery.

There are so many choices with the reward programs, but most of them fall into any one of these 3 categories.

Cash back: Here the reward program offers cash back, and it is based on the percentage of the total amount spent on purchases.  The money that is due to the customer could be obtained as cash, credit, or it can be donated to any charity of their choice. It could also be deposited into any other bank account or used to pay the home loan.

Theme rewards: Here the customer can choose the category that sounds interesting to them. The card holder can earn points over time and once the points that are earned are accumulated the cardholder is allowed to cash in the points. For instance, if you are interested in skiing, then you could use those points to enroll at a ski resort, where you could avail free lessons in skiing, or get new ski clothing, etc.

Basic rewards: This is one of the oldest credit cards rewards program, where there is a reward for every dollar spent such as a frequent flier mile on a preferred airline. Once you accumulate the miles they could be redeemed for an air ticket or accessing lounge facilities at airports, etc.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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