PURCHASE, N.Y. – MasterCard’s new Preferred Rewards program, which is targeted at medium sized and smaller card issuers, emphasizes card issuer flexibility to increase its appeal to as many smaller institutions as possible, according to a MasterCard executive. The new program will not require MasterCard issuing institutions to sign up, said Barbara Hvasta, vice president for loyalty consulting and rewards services for the association, but will allow them to join if they like. It will also allow the participating card issuers to determine how its cardholders sign up, whether through the financial institution or by replying to MasterCard directly. “We definitely had credit unions and smaller institutions in mind when we put this together,” Hvasta said. “We wanted to try to meet their needs for a rewards program.” Hvasta explained that MasterCard, which already had one rewards program in place, decided to offer the Preferred Rewards program after it became clear that too many of the smaller card issuer lacked the resources and staff to manage the larger program. MasterCard has offered the larger program, which allows the institution to customize and manage almost all aspect of its card reward effort, since 1977. By way of contrast, VISA initially made its card issuers opt out of its VISA Extras program after a relatively short period to analyze the program. The San Francisco-based card association later allowed its card issuers to opt-in to its program in the wake of its settlement of an anti-trust lawsuit with retailers. As a condition of the settlement, both VISA and MasterCard agreed to cut interchange rates on their branded debit cards that are authenticated with a signature by one-third and to negotiate a new rate with retailers. The new rate will go into effect after January 1, 2004. Although the new program has many aspects that would appeal to smaller institutions, such as one fee to start the program as well as the ability to add the program to both credit and debit cards, Hvasta emphasized that its rewards would be as good as rewards program used by larger institutions. “We surveyed cardholders and tried to offer a mix of rewards that would appeal to a broad collection of cardholders,” Hvasta said. The rewards offered will not be limited to only gift certificates, but will include travel based rewards and name-brand merchandise as well. “We definitely wanted to include a travel reward because we have found those rewards are definitely aspirational,” Hvasta said. “Aspirational” rewards are those that the card industry has found cardholders willing to save points toward getting and, sometimes, will even accept the card or start using the card to attain. The travel rewards the new program will offer include free round trip airfare, which Hvasta described as a “big item,” but also things like $200 discounts on any airfare, she explained. The merchandise will include things like the George Foreman grill and other name brand items, Hvasta added. Hvasta defended the inclusion of gift certificates in the rewards mix as well. Other card executives have criticized gift certificates in rewards programs, arguing they frequently did not have a sufficiently high-perceived value to the cardholder and were expensive to carry in a rewards portfolio. But Hvasta countered that cardholders liked gift certificates a great deal, that the gift certificates to restaurants consistently placed high on surveys of popular rewards. The rewards program will allow cardholders to link their debit and credit rewards accounts so that the points are combined, but Hvasta reported that a financial institution would have to choose to offer that capability. She explained that MasterCard had tried to keep the program as simple as possible for smaller financial institutions to use and that it was unclear how many would be able to take advantage of that point-pooling, which is called “householding.” So far, she said, only one institution, a bank, has opted to allow cardholders to household their points. Currently, the program will offer rewards points at the rate of 1 point for every $1 spent on credit card transactions. The rewards rate for debit card transactions will be 1 point for every $2.50 spent. The program also caps point accumulation at 10,000 in any given calendar month and 120,000 in any one year. [email protected]

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