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Pay with reward points: Amex prioritises reward redemption

The evolution of digital banking has made it easier for customers to self-serve. In turn, brands are forced to rethink how they encourage customer loyalty. American Express, who have made their support and customer service into a competitive advantage, are focused on evolving their reward scheme. And while customer satisfaction surveys suggest that they are leading in the UK credit card market, they have encountered severe competition in the US.

Market share vs customer lifetime value

American Express, often referred to as Amex, is arguably one of the most respected brands in the world – its brand alone has been valued at $24.3 billion. As an Amex card holder, I have never had a bad word to say about their service and have even, on some occasions, recommended their credit cards to friends and family.

Why? Because Amex makes me feel valued as a customer. How? Firstly, their end users and their customers are the same people. Unlike Visa and MasterCard, American Express control the customer journey from start to finish, from attracting new card holders to the ongoing customer relationships. While the end-user of Visa and MasterCard are the card holders, their customers are banks.

Secondly, Visa and MasterCard focus on the number of transactions and their market share, whereas American Express seeks a higher individual transaction value and a higher customer lifetime value.

To put this business model into perspective, Forbes made a comparison of Visa and American Express in 2014: at the time, Amex had 107 million cards in circulation and processed 6 billion transactions per year, whereas Visa had more than 2 billion cards in use and processed more than 60 billion transactions per year. Despite the vast difference in the number of transactions and customers, American Express had a gross revenue of $33 billion while Visa had $14 billion.

The customer reward scheme

A recent US survey by found that rewards/cashback perks were, by far, the preferred card feature by card holders (35%), and the statistics in the UK don’t differ greatly. The FCA also found that after shopping around, 24% of the respondents chose a credit card with discounts, rewards and benefits linked to it. So with a goal to increase customer lifetime value, it should come as no surprise that Amex have invested in their Membership Rewards scheme. And as Mapa’s Credit Card Dashboard shows, they are ahead of their UK competitors in this area.

In our most recent update, we saw UK providers launching new products; HSBC and Tesco both recently introduced a premium credit card and MBNA launched a five year credit card. This is in line with the findings of the FCA, on the response from banks to the Interchange fee regulation (IFR), which was introduced late last year. The report stated, “firms say they will respond by offering more products with a small or increased annual fee or diluting rewards schemes.”

American Express, who are exempt from the IFR, focused on further evolving their Membership Reward scheme by adding functionality to their mobile app. The credit card provider is trying to make it easier for customers to use their points – ease-of-use is highly praised by the analysts here at Mapa – whilst giving them more flexibility in how to redeem rewards. Amex customers can now choose to pay for individual transactions with their Membership Rewards points – similar to retailer loyalty cards available in the UK, for example Boots. The only difference is that, with the Amex card, the decision to pay with points is taken after the transaction has been made.

Pay with points in the Amex app

Fierce competition in the US

A possible motive behind launching this new feature is that, after holding on to first place in the J.D. Power Satisfaction Poll for nine consecutive years, American Express was overtaken by US competitor, Discover in 2015. The reason for this dethroning was stated to be largely due to improvements in Discover’s reward redemption process.

The Satisfaction Poll also reported that the frequency of redeeming rewards had increased year-on-year; 53% reported having done so in the last six months, compared with 49% the previous year. More interesting, however, is that the reward satisfaction levels among these customers is higher than with those who have redeemed rewards between six and 12 months ago – 856 satisfaction score versus 828, out of 1,000. The difference is more notable between those who have never redeemed a reward (728 satisfaction score).

It’s understandable that Amex has taken steps towards making it easier for customers to use their points. In the UK, there is less direct competition in terms of market positioning and proposition. This is not the case in US. Whether Amex has felt the pressure from Discover, or the reason to introduce this feature came from elsewhere, we can’t say for sure. But this feature enables customers to redeem rewards more frequently, and is likely to have an impact on customer satisfaction.

With access behind the login, our Credit Card Dashboard monitors 14 credit card providers in the UK. If you would like more information on how to subscribe to this product, get in touch now.


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