Cash Back vs. Points: Which is Best? (And When to Combine Them)

Cash Back vs. Points: Which is Best? (And When to Combine Them)

Cash Back vs. Points: Which is Best? (And When to Combine Them)

Cash Back vs. Points: Which is Best? (And When to Combine Them)

As any credit union designing a new loyalty program can attest, there is an age-old dilemma that the industry has yet to resolve – Is “cash back” king, or do members prefer points?

And while celebrity-studded advertisements and conventional wisdom both point to “cash back” as the best way to win over hearts and wallets, an in-depth look at both approaches to loyalty might just suggest otherwise.

“If a credit union was to go and survey its members, 60 to 70 percent might initially say they prefer cash back,” said Andrew Gates, CEO of Azigo, Inc. “However, if you ask members if they would be interested in airlines and hotel offers, grocery discounts or even donating their points to charity, many would also say ‘yes’ to these offers. There is intrinsic value in both paradigms. The challenge for credit unions is to construct a rewards program that inspires loyalty.”

Cash Back Has Its Place

Gates emphasizes that “cash back” has been proven overall to increase card transactions. “That is a very good thing,” said Gates. “But you need to consider that when you give members cash, whether it automatically goes into an account as a credit or they have to redeem it somehow, they really have no emotional connection to it – and they may even feel guilty about spending it. Points-based programs, on the other hand, allow you to give members something that is a little more aspirational – and that drives loyalty.”

According to Gates, it is important to note that “cash back” can – and many times should – be included in the program. “There is a perception in the market that ‘cash back’ is what consumers want, and you can successfully address that by including it as a redemption option,” he said. “But remember that ‘cash back’ locks you into competition with big banks, such as Capital One – and Capital One will outspend your credit union every single time.”

Making Points Pay Off

When it comes to points, Gates touts their “flexibility” as an attribute every rewards program should use to its fullest. “For example, you can make it somewhat ‘inexpensive’ to redeem points for popular items, such as travel perks, and then raise the valuations on other items, and your members will still perceive the overall program as hugely valuable,” he said. “And if members are earning points across all credit and debit transactions, plus getting additional perks through merchant-funded rewards, they will see their points add up quickly – and then they are engaged.”

He adds that keeping the redemption offering fresh and evolving is a great way to build on this momentum.

“Look for ways to change things up periodically,” said Gates. “But always keep the messaging and program logistics simple. You need to avoid what we call ‘complexity creep’ because if you wind up confusing your members, they will lose interest in the program.”

Redemption as an Investment

Gates notes that another common pitfall to avoid is making points easy to earn, but difficult to redeem.

“Many credit unions look at redemption as an expense – and one they should try to avoid,” he said. “In actuality, redeeming points is exactly what you want members to do. The more they redeem points, the more they will appreciate your credit union and use your cards. Point redemption is the path to member loyalty.”

Gates adds, don’t be afraid to offer them something spectacular for their points. “If, as a credit union member, I have the ability to earn a luxurious Hawaiian vacation, whether I spend on that card enough to accumulate all of those points is irrelevant,” he said. “Just knowing that I could get there gives the program a halo effect.”

He continued, “Market the program well. Even though we are all getting way too many promotional emails today, each of us has companies and organizations that we value, and we will open their e-mails. If you are that organization for your members, then helping them earn more points – and updating them on their progress – should be part of your service model.”

Gates also emphasizes that the most successful programs have enthusiastic buy-in from the C-suite on down. “Every credit union employee should view member engagement and loyalty as central to his or her job,” he said. “Credit unions by definition exist to serve members – and the right rewards strategy can help you fulfill that mission.”

Find out how to turn up member satisfaction this holiday season.