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NEEDHAM, Mass. - Payment card-based reward programs are essential for every tier-one credit-card issuer, according to new research from TowerGroup. And TowerGroup estimates that 70 percent of spending by credit-card issuers is associated with products that offer loyalty benefits to cardholders. In fact, successful loyalty programs have proven to improve response rates, increase customer-spend and reduce account attrition, the research shows. 
 
American Express Co. pioneered the concept of rewarding loyal customers as part of its spend-centric strategy, and commercial banks have long sought to re-enact AmEx's decades-long success with that concept. AmEx's card-business model is built on the notion that the card product can generate more revenue by capturing and leveraging information about card-member-spending requirements rather than merely meeting cardholder-lending needs.   
 
In its new report, "Lessons in Loyalty: A Look Inside the American Express Rewards Program," TowerGroup's Brian Riley illustrates how AmEx differentiates its loyalty program with a customized approach. 
 
AmEx operates on a platform that differs from those used by branded networks MasterCard and Visa because it controls the customer and merchant base. Controlling both sides of the transaction gives AmEx access to both buying and selling information. The company uses that closed-payment loop as a strategic advantage, building merchant and consumer relationships, and leveraging its information on purchase habits to customize rewards offerings.  
 
While banks may not be able to emulate this specific feature of American Express's business model, they can and should map their own strengths to closed-loop-rewards programs. 
 
 

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