An executive with a leading card processor expects that credit card reward programs tied to and funded by merchants are only likely to grow over the near and medium term.

Robert Legters, vice president of loyalty services for card processor FIS, attributed the growing popularity of merchant-funded rewards programs to the economic dynamic that, he said, benefits both card issuers and retailers.

Merchants help fund card reward programs because they serve as a way for them to both cut and target their marketing costs, Letgers explained. Credit unions and card issuers like them because they help boost their cards’ popularity, he said.

“Remember, a merchant funding rewards points only pays the points if a customer actually purchases a product subject to the reward,” Legters said. In effect, this lets the retailer put marketing dollars in a program with proven results, he explained, adding that merchants saw this practice as more efficient than buying advertising and hoping to draw sales from people who saw the ads.

Legters said the increased popularity of merchant-funded rewards is what led FIS to add such a program to its already existing card incentive programs. FIS processes card transactions for the majority of credit unions that issue cards.