Who’s wins reward war? Savvy credit customers

Behind the front lines of everyday bank business lurks a silent war.

It’s a war for consumer credit, with its high interest rates, in which opponents fight over new customers for signature reward credit cards. The weapon of choice is usually a “tease,” offering free stuff.

Truth is, nearly every major commercial enterprise has a credit card reward program, from frequent flyer cards and gas and grocery cards to phone cards, car rental cards and dozens of ski cards.

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In a sense, local and corporate banks are looking for ways to beat out charge card giants like Discover and American Express for VISA and MasterCard accounts.

So, who’s really winning the war for your business? And how are they doing it?

Bill Branigan, president of card services for Norwest Banks, said he thinks the best strategy to win over reward credit card customers is to find a niche market, where a bank’s reward card program offers one product that meets everybody’s needs.

Norwest Banks offer two reward cards: a VISA Classic, which has a $39 annual fee and an 18 percent interest rate; and the VISA Gold, which costs $59 annually and a 17 percent interest rate. Both reward cards are based on a point system (i.e. one point for every dollar spent).

“With our reward cards, our minimum award level is 15,000 points,” which can be exchanged for gifts or services or credited to a bill, he said.

“We try to give the consumer a great deal to chose from in the program,” Branigan said.

Norwest’s card reward program doesn’t include flight miles bonuses, because Branigan said many of today’s business travelers have to fly on budget airlines, which makes it harder to for them accumulate points. That means they’re not as interested in using a frequent flyer card.

“For instance, let’s say I was a salesman. I would want to take United (paying more for a ticket), so I could accumulate a lot of points to get the extra miles,” he said. “In our case, it’s appealing to the average consumer who doesn’t do a lot of flying.”

Bank One Colorado, on the other hand, has a reward card that caters to primarily the business sector.

“One place we have a competitive edge is in our business credit cards,´ said Caroline Darkley, public relations manager of Bank One Colorado. “These credit cards (VISA or MasterCard) are geared to a small business, like a Mary Kay cosmetics salesperson who can use the card for a lot of different business discounts.”

Bank One’s Business Credit Cards offer 5 percent discounts on AVIS car rentals, discounts on overnight stays at Clarion, Econo Lodge, Roadway, Comfort and Quality inns; 10 percent discounts on printing services and products at Alpha Graphics in Denver; 45 percent off long-distance calling from UniDial; and free delivery service and monthly discount coupons from Office Depot.

Bank One’s business cards also can be set up as company credit cards, so other employees can use them. The annual cost of setting up a Bank One Colorado Business Credit Card account varies, depending on how many users there are: for one to three card holders the cost is $45 annually, $40 for four to 10 users, $35 for 11 to 24 users, $30 for 25 to 49, $25 for 50 or more.

“One thing that is neat about the business card is we provide one statement to simplify the bill paying process,” Darkley said, “We also have a Travel Plus credit card that is (issued) out of our Bank One Columbus office.”

Bank One’s Travel Plus is a VISA credit card that can earn one point for ever dollar credited and rotated forward on a balance; or one point for every three dollars used on credit, if the account balance is paid off in full. Points awarded on this card can be redeemed by any U.S.-based airline, according to Bank One.

Charge card tacticians like Ron Boothby, a Novus Services account manager for Discover, says the newest trend for converting credit card clients into charge card ones is to offer a lower interest rate for transferring a VISA account balance.

“We’ll give them a 6.9 percent interest rate until October of 1998, after that it will go up to 17.4 percent,” he said.

Discover also offers annual cash back bonuses.

“We don’t have a frequent flyer program, but we do have $500,000 flight life insurance for every ticket purchased with a Discover card,” Boothby said. “It covers you and your immediate family.”

The big reward that draws customers for American Express is its free round-trip airline tickets program based on a point system, says Dennis Profitt, an American Express customer service representative.

Despite the recent news that some airlines plan to do away with frequent flyer programs, there has been little effect on American Experess card holders, Profitt said.

So far, only USAir has pulled out of a partnership with American Express, a move that became effective Jan. 31, 1998.

“It’s something that has been brought to my attention by a lot of members,” Profitt said. “It’s true that a lot of airlines are trying to get their own card programs … (or) their own cards may be discontinued, but their contractual agreements with (American Express) are still good.”

Forming partnerships between banks or charge card companies and merchants is the key to gathering more reward card accounts, said Emily Porter, an American Express spokesperson.

“Basically, awards programs are done in concert with other partners like J. Crew or Delta,” Porter said of a couple of American Express partners. “Then, we’ll come to agreements that make economic sense to us.”

Those partnerships in turn allow charge card companies or banks to buy bulk airline tickets or services and merchandise. “(Plus,) we’ll make a percentage of profit,” she said.

Branigan, however, said that banking credit card reward programs tend to make their profits off of interest rates. “The margin of profit is a lot smaller than regular credit cards,” he added.

“Credit card companies gain their customers’ loyalty by adding extra benefits,” Porter said, adding that “reward programs can be very beneficial to the customers, but they should find those that are tailored to their needs.”