[Dave Birch] It was good fun at Prepaid 2012. I sat in on a super case study from Turkey, caught up with old friends, saw a couple of new toys in the exhibition and, thanks to the gentlemen and scholars at Clarion, had a good time chairing the end of event "Dragon's Den". The idea is based on the popular television programme of the same name, which I have never actually watched because I hate reality television in all its form (although I know what it is, of course, from watching Harry Hill's TV Burp). In the Prepaid 2012 version of the competition, three companies pitched to three dragons who pretended to pick the one that they would invest their own money in. The dragons, who I have to say were great sports and made it an enjoyable way to round off the conference, were
- Mark Beresford from Edgar Dunn.
- David Parker from Polymath Consulting.
- Robert Courtneidge from Locke Lord.
The "contestants" (I'm sure that's the wrong word) were
- Carta, who were pitching real and virtual card issuance using their front end to MasterCard's MOTAPS.
- Cashstar, who were pitching their e-gift range.
- Cashbackpoint, who were pitching their real-time cash rewards system for merchant.
All of them put forward pretty good pitches, but in the end the dragons plumped for Cashbackpoint. This was largely, as far as I could see, because they have a proposition that looks good to both the consumers and the retailers and because they already have customers on board. But the Dragons did take the time to highlight genuine positives around all of the pitches. It wasn't the case that two were bad and one was good. They were all great.
Cashbackpoint have a merchant-funded rewards proposition whereby customers register their payment cards and they get varying degree of cash back for using those cards in particular merchants. Since I don't really understand much about the economics of merchant rewards, I invited Bish Smeir from Cashbackpoint down to our office to record a podcast and I'll put it up on the Tomorrow's Transactions podcast channel on iTunes once it's been edited.
I can certainly see the benefit of "straight" cash back. The market shows that consumers like rewards cards, even if they don't always take advantage of the rewards. There is a tension here, of course, because merchants don't like funding issuer rewards and since rewards drive consumers to use more expensive (for the merchant) cards, there's surely potential for rewards that link more closely to the retailer's strategies.
According to recent research, approximately 60% of all credit cards in US circulation offer some kind of reward, accounting for roughly 80% of all charges made. Even with this kind of activity, though, only two-thirds of all rewards earned in 2010 were actually redeemed.[From Frequent Flyer Miles To Cash - New Virtual Currency]
One of the reasons why I like my John Lewis MasterCard so much is that it gives cash back in the form of cash vouchers that I can use in Waitrose, where we shop every week. I'm not really bothered about other kinds of rewards where you have to collect points, look in catalogues and decipher incomprehensible special offers (if you stay in this hotel and then that hotel on a Wednesday and bring your grandmother, that sort of thing). Given the growing pressure on interchange, I can't see how "free" rewards can continue so merchant-funded cash back looks an interesting field.
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