The Hindu Business Line : Earn as you spend via card

Loyalty programmes convert spending to points that can be redeemed while shopping. But pay the minimum monthly due on time to benefit from such schemes.

Simran Kalra

Credit cards come with the convenience to shop now and pay later. But credit cards are more than just a payment tool. If used wisely, they can help you get up to 10 per cent return on your spend. How? Welcome to the world of loyalty programmes. Before we learn how to choose the right loyalty programmes, let’s understand what these schemes are and how they work.

Most loyalty programmes give card members reward points for spending on their credit card. The points can be redeemed (or “burned”) for travel, shopping, dining and entertainment benefits.

Many of us dismiss these schemes as marketing gimmicks; but the fact is that these programmes are designed to work for the benefit of the card members, merchants and credit card companies.

It is easy to be confused by the proliferation of loyalty programmes in the marketplace. A wrong choice more often than not will not give you the intended benefit due to unimaginative or needless redemption choices. Invest a little time to understand which plastic provides you the best returns and helps you “earn while burning”.

Earn Rate

Normal Earn: As a part of the product value proposition, most credit card companies offer reward points for spending through cards. Typically, a card member can get one point for Rs 40 to Rs 200 spent. This, however, depends on the card and the bank. For instance, American Express gives one point per Rs 40 spent on its cards. Some programmes don’t give reward points on certain categories of spending, like fuel-purchase transactions. Customers should carefully study the exceptions and check the value (the earn/burn ratio) of these points.

Bonus Points: Some programmes offer bonus points, allowing customers to earn double, triple or even 10 times the points for the same spend. Check if restrictions apply, such as a limited period offer, for all spend or limited to selected merchants and try to maximise your earnings.

American Express card members can earn 10 times membership rewards across 500 platinum partners outlets and five times reward points on all their weekend shopping with Membership Rewards’ Xraordinary Weekend Programme.

Don’t forget to check the lasting power of your points. All your hard work would go waste if your points expire. Therefore, customers should select programmes offering non-expiry points. As non-expiry points allows customers to accumulate points from year to year.

Burn Rate

Redemption potential: Compare the value of reward against spends.

The value of a point can be calculated by checking the worth of the reward against spends made, to earn that reward. Therefore, customers should choose a programme offering higher reward earning potential.

Reward categories: Most programmes have started offering a range of redemption options, including garments, home appliances, cosmetics, gift vouchers and donation, to charities. However, you should choose the programme that offers maximum number of redemption options that suit your lifestyle needs.

Air miles: Some banks now offer an option to convert reward points to air miles, enabling their customers to buy air tickets using their reward points.

For instance, American Express has tied up with five leading frequent-flyer programmes of the world (which currently have more than 27 participating airlines) to allow its card members to convert their reward points into air miles hence earn free flights.

Also, compare the minimum number of points required for rewards.

A scheme that offers one point per Rs 100 spent and rewards starting from 2,000 points, for example, is a better deal than one that offers two points per Rs 100 spent and rewards starting from 20,000 points.

Understand reward fulfilment: Customers should look for a programme that offers easy-to-use rewards redemption processes and faster delivery of rewards. Some loyalty programmes provide convenience of Web-based redemption, home delivery and online order tracking.

Reward delivery time can be anywhere between three days to two months.

One must avoid long delivery time by choosing the right programme.

Flexible points plus pay option: To speed up redemption of rewards, some loyalty schemes give points plus pay option whereby customers can simply use their accumulated points and pay the balance to get their desired reward.

Using points optimally: Now that you know how to choose the right loyalty programme, let’s understand how to use them optimally. To make loyalty programmes work best to your advantage, you need to plan a bit. Here are few simple steps to earn your rewards faster.

Consolidate your spending: Consolidate your spending with a single credit card so that you can accumulate your points faster. Big ticket items (especially family-related spending) should always be consolidated into one single card.

Everyday spends: Make it a habit to charge all your spending and purchases on the card, especially daily spending such as at supermarkets, gas stations and cinemas. One can earn more than one can think of by purchasing intelligently.

Paying utility bills: You can earn valuable reward points simply by paying your electricity bills, insurance premium and phone bills using your credit card. These bills, which are always seen as liability, may earn you a free trip.

Several card companies provide bonus points to members for giving standing instructions to pay utility bills such as electricity, phone and insurance premium.

Savvy consumers are aware of the various reward programmes and intend to patronise merchants who can help maximise their spending power.

However, there is one caveat. For card members to fully utilise all the credit card benefits, they must use the cards responsibly and pay the minimum monthly amount before the scheduled date to enjoy the unending benefits of owning a credit card.

Happy spending.

(The author is Vice-President, Product Management & Development, American Express)

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