Credit cardholders favor cash back over any other incentive, according to a new study that accentuates how consumer card loyalty programs continue to outshine commercial programs, which never offer cash-back rewards.
Yet, vendors are finding new ways to use reward programs. American Express this summer began offering small business commercial cardholders loyalty points for compliance and rewards maximization consulting and technology firm Zevez Corp. helps companies cash in on cash-back and other rewards when paying business expenses.
According to a survey of 1,407 cardholders released last week by research company and loyalty provider Maritz Inc., 54 percent of cardholders selected cash back when asked what types of rewards they prefer—an option that has boomed on the consumer side but remains nonexistent on the commercial side.
"All of the large corporate card programs really don't compare to the individual user programs," said Bob Lichtman, a principal of Menlo Park, Calif.-based consulting firm Corporate Solutions Group.
When Discover Card—which exclusively issues to consumers—launched its cash-back rewards program in 1986, the concept was unique in the card industry. Since then, such offerings have grown in popularity on the consumer card side, where cash back is offered by most major card issuers and remains wildly popular with cardholders.
CardWeb.com, a payment information Web site, noted that 25 percent of all credit card solicitations in 2003 offered cash-back rewards, up to 1 billion from 700 million the prior year.
The concept of cash back for corporate cards is unheard of despite the growth of the offering in the world of consumer payment. "As you can imagine there is a lot of tax regulation and IRS scrutiny in that area when it comes to corporate spend, which is why you don't see a proliferation of that at all in the corporate space," said American Express vice president of marketing for corporate card Shelle Santana.
Yet, there is another financial reason card providers have found it difficult to offer such rewards. Due to revolving credit lines and income from interest, the profitability of consumer cards have trumped their commercial card counterparts, as issuers rely primarily on income through merchant fees and interchange. As income booms for consumer offerings, so do the rewards back to customers, sources said.
For consumer cards, cash back in excess of 5 percent is not uncommon, yet for corporate-sponsored charge card programs, companies will lump any cash-back option toward corporate rebates, which rarely exceed 1 percent.
Despite the shortcomings of corporate card rewards programs, they have grown more elaborate for corporate cardholders in recent years. Citicorp Diners Club executive vice president Gerald Smith said that while airline miles are still the most popular among corporate cardholders, the Club Rewards program now entails redemption for anything from adventure travel vacation packages to liposuction. "If you can dream it, you can redeem it," Smith said, quoting what he said has become a common mantra around Diners Club.
Likewise, since American Express launched its rewards program for corporate cards in 1995 as Membership Miles—which was the exclusive domain of airfare redemption—the company has broadened its scope beyond miles, changing its name to Membership Rewards. While "some people are hardcore travel redeemers," according to Amex's Santana, "the growth of our non-travel partners since 2001 has been about 45 percent to 50 percent." Now, she said, Membership Rewards can be used to donate to charities or catch a Broadway show.
American Express also this summer began using its Membership Rewards program to help corporate accounts corral traveler behavior by offering them loyalty points for complying with policy
(BTN, June 30). The concept now is being offered to small accounts, typically those with less than $3 million in U.S.-booked air volume, but American Express said it is exploring the program for larger companies. "Everyone knows that Membership Rewards has been a gem for the consumer franchise for well over a dozen years now," Santana said of the program. "In the corporate space, we're just now beginning to leverage it and apply it in more strategic ways." Amex would not disclose the number of companies that have enrolled in the program.
Meanwhile, Zevez Corp. in June launched RewardWorks, a service to help customers tie vendor payments to rewards programs. The company facilitates the payment of invoices and other corporate expenditures using credit cards that offer rewards programs. The company said it is unaffiliated with any credit card company and allows corporate clients to use consumer card rewards or commercial card rewards for the program.
"Every business pays bills, and now every business has the potential to earn rewards for doing so," said CEO and founder Joe Graziano.
A Zevez spokesperson said the firm carries out the process for clients "from checking on vendors who accept cards and finding the best card for the customer to installing a software system that interfaces with existing accounting software to offer a redemption service so customers use rewards they've accumulated."
Although some Zevez clients have tied consumer cash-back rewards cards to vendor payments, the spokesperson said, most card issuers cap credit card cash back at around $10,000 annually per card. Yet, the firm said some customers use such consumer offerings for businesses.
Companies have applied a variety of approaches to the management of corporate card rewards programs: Some mandate but allow rewards, others pay for the cost of rewards programs for their travelers and others strictly prohibit enrollment.
"The majority of companies allow rewards, yet leave the cost of programs up to corporate cardholders," said Dave Hillman, president of New York-based consulting firm Hillman and Associates.
One company that takes such an approach is Lucent Technologies, which recently mandated the card globally. Manager of global card services Adrienne White said when the company recently consolidated its card program globally, it was met with the task of homogenizing its approach to rewards. While the company paid for the cost of such a program outside of the United States, stateside the company did not pick up the tab. Ultimately, the company went with a mandate and no longer paid for the cost of rewards programs, although still allowing travelers to enroll.
Many companies like Lucent in recent years have become more likely to mandate the card.
A Bank of America commercial card executive said, "While our T&E program does offer a reward option, most large clients are now opting to maximize their rebate opportunities rather than provide expensive services to a small segment of their employees."
Midmarket firm Nextel Partners allows its cardholders more flexible options, said travel manager Nancy Witt. Although the company offers a corporate card program to travelers, Witt said, it is neither mandated nor required to be used at all—largely because of traveler attraction to their personal plastic. "You use your card, you get reimbursed," she said. "They still have the option to get a corporate American Express card but it's not pushed at all. Of course, the travelers want their points or their miles."