By Andrew R. Johnson
Will that be debit, credit or rewards points for your purchase?
More credit-card issuers are allowing customers to pay for transactions using their rewards points in hopes of hanging on to their most valuable borrowers.
Typically, card lenders require customers to redeem points or cash back in set increments, limiting their options to gift cards, merchandise and travel ordered on their proprietary rewards site.
But as competition for customers increases, lenders are branching out, allowing customers to use their points like they would cash when paying for transactions.
The latest is Citigroup Inc. (C), whose ThankYou Rewards members beginning on Tuesday will be able to apply portions of their points directly to purchases they make on ticket-seller Live Nation Entertainment Inc.'s (LYV) LiveNation.com website.
"We are constantly looking for ways to remove friction from the redemption process," Ralph Andretta, head of co-brands and loyalty for credit cards at Citi, said in an interview.
When a customer purchases event tickets on the site, they can opt to pay for an entire transaction using ThankYou points they have accrued through their spending on Citi cards and other activities. They can also use a portion of their points if they don't have enough to cover an entire transaction, paying for the rest of the purchase with a Citi credit or debit card enrolled in the bank's ThankYou program.
Citi is "in development" with a couple of other merchants it expects to announce similar deals with by the end of the year, said Mr. Andretta, who declined to name potential partners. Citi already allows customers to apply ThankYou points to travel-related purchases through its site.
Credit-card issuers rely on rewards programs to encourage spending, typically offering a set number of points, a percentage of cash back or airline miles for each dollar a borrower charges with their plastic.
The more customers use their cards, the more revenue lenders can receive from fees merchants pay each time a card is swiped. To that end, banks vie to be "top of wallet" among their customers' payment options.
"The average consumer ... has anywhere from three to four cards in their wallets," Scott Strumello, a payments consultant with Auriemma Consulting Group, said. "The question is which one do they reach for when they're going to make a purchase. If you can get their card to be top of wallet, that's all part of the engagement strategy."
Removing friction, or intermediate steps, from the redemption process could help tighten a bank's relationships with its customers.
Citi's move follows similar roll-outs mainly in the last year by Discover Financial Services (DFS), American Express Co. (AXP) and J.P. Morgan Chase & Co. (JPM). All three let customers with specific credit cards apply some or all of their rewards directly toward purchases made at Amazon.com, though each assigns a different conversion value for what the rewards are worth on the e-commerce site.
For example, 1,000 American Express Membership Rewards is worth $7 on Amazon.com. Alternatively, 1,000 points earned with Chase's Amazon.com Rewards Visa credit card are worth $10 on the site, with no minimum point requirement.
American Express, the largest credit-card lender by spending, has a similar tie-in with Ticketmaster, also owned by Live Nation, that lets its Membership Rewards members use their points on the site. The value of 1,000 Membership Rewards points on Ticketmaster is $50.
Mr. Andretta declined to say what ThankYou points are valued at for purchases on LiveNation.com.
Brian Riley, a senior research director for bank cards at CEB TowerGroup, said he expects more credit-card issuers to move to "real-time rewards" that enable customers to redeem offers and other perks while at a merchant to get a leg up on the competition.
Many credit-card lenders retrenched from marketing during the recession as loan losses surged, increasing expenses for banks. But over the last year, many issuers have returned with a vengeance, dangling lavish sign-up bonuses and other rewards perks for new customers.
"The competition is as fierce as" it has ever been, Mr. Andretta said, adding that the marketing channels the industry is focusing on "have shifted, and we're shifting with them."
Earlier this year, the bank announced a Facebook application that allows ThankYou members to pool their points together to redeem for rewards. The idea is to make it easier for customers to reach a point goal. It also rolled out a mobile application last year that lets customers search for and order products at Best Buy Co. (BBY) and determine how many ThankYou points they would need to redeem for a purchase.
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