Who pays for your rewards?

Have you wondered who pays for all those rewards your bank gives you? Maya Fisher-French investigates

With competition hotting up to attract new customers and retain existing ones, banks have created loyalty programmes designed to reward clients they want to keep – basically, customers who spend a lot and pay their bills.

If you work the system as a customer, you can receive more back in rewards than you are paying in bank fees – an Absa customer spending R12?000 a month on their card could earn up to R620 in cash each month as a loyalty reward. Banks are not exactly philanthropists and are in the business of making money – so where is the money coming from?

Banks have different reasons for their rewards programmes. Rewards programmes encourage customers to take up more products with the bank, which means the bank earns more fees across various product channels. Other incentives plan to encourage a certain type of banking behaviour such as transacting online, keeping your account in good order and reducing the cost of managing the account.

But irrespective of the individual bank’s rewards structure, all the rewards you receive are linked to how much you spend on your card each month. This is because banks earn an interchange fee on all card transactions and these fees are used to finance a few of the rewards programmes.

The interchange fee is the one that banks pay each other for card transactions financed by the merchant.

While “invisible” to the retail client, a merchant will pay the bank for every card transaction it processes.

By encouraging more clients to use their cards instead of cash, the banks earn more revenue from interchange fees.

The interchange fees will be reduced in March next year, especially for cheque cards. This will take its toll on the revenue of banks and their ability to fund rewards programmes.

This will affect the banks differently, depending on how the rewards programme is structured.

FNB rewards

FNB’s eBucks rewards programme encouraged customers to move from debit cards to cheque cards as the interchange fee on cheque cards is substantially higher than debit cards.

Apart from Capitec, FNB has the highest ratio of cheque cards at 49% to 51% of debit cards. As a result, FNB’s rewards programme will be hit hard.

From October 1, FNB restructured its rewards programme and customers with cheque cards will see the earn ratio of eBucks reduced unless they add a credit card to the account. For example, platinum cheque card holders used to earn 2.5% of their spend in eBucks, this will be reduced to 1%. But if they have a credit card linked to their account, they will receive 2% back on their credit card expenditure.

There is no fee to belong to eBucks for Smart Accounts, cheque accounts and credit cards linked to cheque accounts. However, FNB customers only qualify to earn eBucks if they meet certain criteria, including minimum deposits, minimum transaction levels and keeping accounts in good standing. There is a R200 annual fee for clients who only have a credit card. This is to encourage customers to keep their primary banking with FNB.

James Fowle, the head of premium and business core banking at FNB, says the rewards programmes are partly funded by interchange fees and cost savings by improved banking behaviour and additional products.

Not all FNB customers qualify for eBucks as they do not meet the requirements of banking behaviour.

Absa rewards

Absa says its rewards programme will remain unaffected as cheque cards make up a small percentage of their card base and their rewards are not based on card swipes, but on the number of products.

Absa charges a monthly fee of R21 a month for its rewards programme. The percentage of rewards you earn per rand spent is the same irrespective of which card you have, but it does increase based on the number of products you have with Absa.

Rewards start at 0.25% cash rewards per rand spent on the card up to 1% for Tier 3 members who need one transactional and three products from any of the other six product categories to qualify.

James Rheeder, the head of rewards at Absa, says the bank has not based its rewards on banking behaviour as this can become a hurdle to earning rewards and can actually create a disincentive. To further reduce hurdles in earning rewards, all Absa rewards are paid as cash and not points. This means clients can easily understand their rewards and redeem them.

Nedbank rewards

Nedbank clients continue to earn one Greenbacks point for every R5 spent on a cheque or credit card. But limits apply to non-American Express (Amex) cards and customers only earn Greenbacks on the first R5?000 spent on cheque cards and R10?000 spent on credit cards.

The bank incentivises the use of Amex cards by offering double Greenbacks points for every R5 spent and no limit applies.

Nedbank is also expanding the breadth of the Greenbacks programme to reward clients for responsible banking behaviour.

Nedbank charges R179 per annum for Greenbacks membership and this can be linked to multiple cards.

Standard Bank rewards

Standard Bank was unable to comment on the impact of the interchange fee on its rewards programme as it is in the “process of reviewing the UCount Rewards proposition”.

But the bank only has 15% cheque cards and the current UCount Rewards are based on earning tier points based on banking behaviour.

You earn tier points for specific behaviour, for example, a minimum monthly deposit amount, using the Standard Bank app or internet banking, consenting to receiving marketing material, as well as having additional products.

Interestingly, Standard Bank offers more tier points for loan products than investment products.

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