Cashback, retail discounts, dining vouchers, free airline tickets, weekend getaways, concert passes, donations to leading charitable causes… There is a growing demand for credit-card reward programmes among cardholders in the UAE. And banks in the UAE regularly roll out lucrative incentive plans to lure customers to swipe more.
“With enticing reward programmes in place, which truly award customers, many customers are now encouraged to consolidate spend on their credit cards,” says Navneet Dave, Head of Cards, National Bank of Abu Dhabi. “However, it is important that customers possess the cognitive maturity to spend within their capacity.”
According to a study released last year by Phoenix Marketing International, a market research firm headquartered in the US, rewards on credit cards are now not just for the affluent but are widely used at all income levels, and cardholders prefer to swipe reward cards for 80 per cent of their credit-card purchases.
Reward programmes were originally introduced by banks to encourage a shift in payment from cash to credit cards. However, today rewards are a point of differentiation among products available in the market, points out Devendar Agarwal, Mena Assets Head, Citibank. “The focus of reward programmes is to build customer loyalty. With increased competition in the market, a lot of variants of reward programmes have been introduced, ranging from simple voucher-based rewards to miles transfers programmes.”
But, how easy is it for a customer to get rewards? The more a cardholder buys, the more rewards he can enjoy. Redemptions are, however, often dependent on the customer’s credit score.
“This practice is put in place to encourage customers to make regular payments,” explains Dave. “In the UAE, [a customer’s] reward earning percentage is based on the product type. Premium products have higher reward earning ratio. Redemption as percentage of spend typically start from 7 per cent depending on what the redemption instrument is: airline miles, vouchers or cashback, for example.”
Banks offer a percentage of their income back to their customers in the form of rewards. These percentages differ based on where the banks want their customers to spend more, points out John Chang, Head of Consumer Banking, Noor Islamic Bank. “If the banks want to drive more international spend, for instance, the rewards on international spend will be more than the local spend. If the banks want to increase the average spending of their customers, they would offer higher rewards for spends over a certain amount.”
No matter how lucrative incentive programmes appear to be, everything comes with a price. Personal finance experts warn against the practice of running up a huge balance on a credit card account just for points, as paying for interests can quickly eat into the rewards.
“If you pay off your credit-card debt in full each month, it would be silly not to have a credit card and benefit from the rewards,” says Natalie Storey, Financial Planner at Acuma Independent Financial Advice. “Sometimes you have to pay a small fee for the card, but the upfront rewards are usually worth it.”
Credit cards that offer exciting perks can only work to a cardholder’s advantage if he practises sound financial planning and budgeting. “When evaluating reward programmes, it is important for customers to make a distinction between a credit-card promotion, which is only a temporary time-bound benefit, and a product feature or a loyalty programme, which is more enduring and rewarding,” says Anil Chander, Rak Bank Head of Cards. “Based on customer feedback, cashback is the most valuable loyalty programme as it offers greater savings and gives customers the liberty to choose how they would like to benefit from rewards.”
So swipe your cards regularly and maximise benefits, but pay off your debts every month.