The Evolution of "Pay with Points": Beyond the Buzz
In the ever-evolving landscape of customer loyalty, "Pay with Points" has emerged as a buzzword deserving closer examination. While the concept of using points for purchases is as old as loyalty programs themselves, the term has recently taken on a more specific meaning within the industry lexicon.
Decoding the Buzz
Traditionally, loyalty program members have redeemed points for flights, merchandise, and gift cards.
However, "Pay with Points" now primarily refers to a direct, seamless payment experience at checkout with merchants outside the point-issuing program. This usage is mainly associated with programs that offer substantial point-earning opportunities, such as credit card, airline, and coalition loyalty schemes.
The term has further expanded to include statement credits for specific credit card purchases, whether through mobile apps or web interfaces. These transactions may occur at the point of sale or, more commonly, as post-purchase actions initiated by the consumer.
Interestingly, even classic in-program redemption stores are now being rebranded under the "Pay with Points" umbrella, illustrating how marketing can breathe new life into established concepts.
The Integration Challenge
Despite long-standing consumer desire for greater point fungibility across transactions, the growth of direct retailer integrations has been hampered by two primary factors:
1. The lack of cost-effective, secure integration technology.
2. The challenge of creating a mutually beneficial currency exchange mechanism that preserves brand integrity and marketing efforts for both program owners and merchants.
Currently, major credit card companies dominate the landscape of direct "Pay with Points" integrations, typically limiting partnerships to a select few large retailers. The most notable example is the ability to use points for purchases on Amazon in North America.
Current Trends and User Behavior
Early data from mobile app-based statement credit programs suggests that users with lower point balances are the primary adopters, with a significant portion of spending occurring at quick-service restaurants, particularly coffee chains.
However, comprehensive data on usage patterns, especially for major integrations like Amazon's "Pay with Points," remains limited.
The Future of "Pay with Points"
While major loyalty programs will continue to innovate and offer new ways to spend points, the trajectory of "Pay with Points" is likely to be more nuanced than a wholesale shift to direct merchant integrations.
The Amazon Experiment
Some programs have opted to outsource their merchandise redemption entirely to Amazon's "Pay with Points" capability. While this approach offers members access to a vast array of products, it's important to note that:
1. Redemption restrictions vary significantly between program integrations.
2. The value proposition for points spent through Amazon is often no better than existing in-program redemption options.
A Hybrid Approach
For the foreseeable future, programs that prioritize control over the consumer experience are likely to adopt a hybrid strategy:
1. Retaining in-program redemption options for gift cards and aspirational merchandise.
2. Developing branded internal "Pay with Points" stores for high-end products.
3. Continuing to experiment with statement credit-based external redemption capabilities.
4. Gradually transitioning towards more mobile-based experiences.
This approach allows programs to maintain brand control while exploring new redemption avenues, all while waiting for direct integrations with major aspirational brands to become more feasible and cost-effective.
Conclusion
While "Pay with Points" has become a catch-all term for various redemption methods, its true potential lies in seamless, direct merchant integrations. However, the complexity and cost of such integrations mean that, for now, most major loyalty programs will likely maintain a diverse redemption portfolio.
They'll continue to offer traditional in-program options while selectively partnering with e-commerce giants like Amazon and experimenting with mobile-based solutions.
As technology advances and integration costs decrease, we may see a broader adoption of true "Pay with Points" capabilities across a wider range of merchants.
Until then, the term will remain a marketing buzzword encompassing both innovative new redemption methods and rebranded traditional options, all aimed at enhancing member value and engagement.