Transformers - Colloquy

Transformers - Colloquy


C O L L O Q U Y / Volume 18, Issue 1, 2010

T H E P R A C T I T I O N E R ’ S P E R S P E C T I V E

High Noon

How card issuers can rally support and

regain loyalty-program trust



to COLLOQUY this year is any

indication, the clock seems to be

ticking toward a financial services

high noon. “What’s the future of

credit and debit card rewards

programs?” we hear over and over.

“Are they living on borrowed time?”

Several factors are converging to

prompt this persistent question.

And, the underlying question is

if issuers can continue happily

doling out rewards and benefits to

loyal cardholders given the dramatic

stand off between issuers and

consumer interests. Those factors


1. The Credit CARD Act of 2009—

largely in place effective Feb. 22,

2010—has changed how the

industry goes about its business.

Some issuers are turning to

additional fees not covered by the

Act, including charging for account

dormancy. The final two phases

of the Act, requiring clearer,

shorter disclosures and consumer

notifications—as well as new

protections for retail gift cards—will

be in place by the third quarter of

2010. In the coming months, the

media will naturally continue to

scrutinize how the banks react,

particularly with the speculation that

more cards–especially rewards

cards—will institute an annual fee.

After all, such fees will certainly

subdue interest in the affected cards.

2. Recent populist uproar has

portrayed banks as conniving

tricksters that must be put in

their place. At the very least, such

sentiment can lead to skepticism

about the motivations behind

rewards programs. But the uproar is

also leading to calls for regulation

beyond the CARD Act—regulation

that will further suppress creditcard

income and the ability to

fund such programs. In some

cases, the uproar takes the form

of consumer move ments like that

of, which claims

that the entire credit card model is

immoral and calls for reforms such

as capping credit card interest

rates at 15%. In other cases, there

are corporate move ments aimed at

garnering popular support—take,

for instance, 7-Eleven’s drive to

entice a million customers to sign a

petition calling for Congressional

action against “unfair and excessive

credit card transaction fees.”

3. The gnashing of teeth about

whether Congress should regulate

interchange fees won’t go away.

Calls for governmental intervention

on aspects of the “merchant discount

fee” (or interchange fee) charged

when a retailer or service provider

accepts a credit or debit card as

Bright Times at Their Peak?

COLLOQUY’s most recent loyalty

census shows astounding growth

in program memberships in the

financial sector, threatening to

eclipse the membership tallies

in the long-time leader, the travel

sector. On the other hand, are

the bright times beginning to slip

back into the travel shadow

after high noon?

Source: 2009 COLLOQUY Loyalty Census

164% growth

in the first half

of the decade




payment have been loud lately.

Congressman Barney Frank,

chairman of the House Financial

Services Committee, claims that such

regulation “is not on the agenda

this year,” and Senator Arlen

Specter responds by saying he’s

“seriously considering” introducing

a bill for such regulation. If such

legislation were seriously pursued,

the underlying business model of

using a loyalty program to attract

and retain cardholders would be


We’ve already seen such impact, in

Australia when regulators imposed

interchange fee limits in 2003. As

Todd J. Zywicki, a law professor at

George Mason University, noted in

The Wall Street Journal: “Annual fees

increased an average of 22% on

standard credit cards and annual

fees for rewards cards increased by

47%-77%. Card issuers also reduced

the generosity of their reward

programs by 23%. Innovation,

especially in terms of improved

security and identity-theft

protection, was stalled. Card issuers

also increased their efforts to attract

higher-risk customers who generate

interest and penalty fees to offset

lower interchange revenues from

lower-risk transactional users.”

23% of all program


Up 77% since

previous Census







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