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American Express India has launched a reward multiplier platform, which allows cardholders to earn accelerated membership reward points when they make retail purchases, including those on major e-commerce portals. This marks a shift from Amex's usual offering of travel-based rewards. But why the shift to retail rewards?

The covid-19 pandemic has forced card issuers to rethink their rewards strategy. This is especially true for premium credit cards such as Amex because their value proposition relied heavily on travel benefits like air miles and lounge access.

Before the pandemic, customers would be willing to pay a substantial amount upfront as annual fees and slowly recover that value through travel perks, but that system needed a change since people are not traveling right now.

“Amex has primarily had a travel and entertainment oriented reward system but now that people have put travel on hold and are not really going out either, they have to change their strategy," said Raj Khosla, founder and managing director, MyMoneyMantra.

“As a result of the pandemic, digital and contactless payments have gained further traction. Our cardmembers’ online spend for utilities, healthcare, education, and entertainment has gone up during this period," said Manoj Adlakha, CEO and SVP, American Express Banking Corp, India.

Amex’s rewards multiplier platform will allow cardholders to multiply their points depending on the card category—10 times on Centurion, five times on Platinum, three times on Platinum Reserve and Platinum Travel and two times on other cards, according to the press release.

This will kick in when they make a purchase from over 40 brands across categories, including e-commerce websites such as Amazon and Flipkart, as well as electronics, fashion, lifestyle, health and wellness brands.

Adlakha added that cardholders would have the flexibility of redeeming their points in multiple ways, including paying with points, getting statement credit or redeeming from the membership rewards catalogue.

According to the press release, Amex has witnessed consumer spending gravitate to online purchases over the past few months as the pandemic limited the opportunity to spend off-line, in stores, malls, shopping outlets and restaurants.

To align with this shift and continue to drive spending, Amex is allowing cardholders to earn and redeem points on purchases made through digital and contactless channels.

"Amex’s strategy has always been to drive spends by linking it to rewards as an incentive. It’s aimed at encouraging customers to go for higher-category cards. The model is designed to tempt customers, and once the customer gets hooked in the first year, the annual fee kicks in second year onwards," said Khosla.

According to Khosla, given that Amex is a proprietary card, they retain all the merchant fees, unlike Visa or Mastercard. In the case of the latter, the issuer—the entity extending the credit to you—is a third party, typically a bank, whereas, Amex acts as both the issuer and the payment processor for most of its cards.

So driving spending is part of their revenue model, aside from the annual fees. Rewards multiplier is a way for Amex to drive spends. They have the best rewards across cards, but their annual fees are also relatively high.

But Khosla warns against buying something just for the rewards. “It can lead to binge shopping, which is a trend we see. Typically the rate of return for the customer varies between 1% to 6% when they go for reward points, but the thing to keep in mind is that you have to shell out the money for the purchase to begin with in order to avail of the reward," he said. If you plan to buy a product to begin with, then a reward points system could be a boon by helping you save and even earn on your purchase, but if it’s not budgeted for, don’t fall into the trap of spending just to get the rewards.

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