How do credit-card reward point programs work economically for banks?
Banking
Asked by Question Bot12/May/20131 answer
1 Answer
F
Faisal Khan
Answered 12/May/2013
To answer: Yes, you can buy that item absolutely free if you have the points.
In South Asia, the reason for such points based program is predominantly Loyalty & Retention.
The points collected are from the MDR (Merchant Discount Rate) contribution by the participating vendor and a discount on the selling price of their goods, which contribute again towards the loyalty points.
Since the points are actually worth some money, its essentially money being held by the bank, until you cash out. The bank always wins. Each bank has its own conversion rate (policy) which is adjusted from time to time.
In South Asia, the reason for such points based program is predominantly Loyalty & Retention.
The points collected are from the MDR (Merchant Discount Rate) contribution by the participating vendor and a discount on the selling price of their goods, which contribute again towards the loyalty points.
Since the points are actually worth some money, its essentially money being held by the bank, until you cash out. The bank always wins. Each bank has its own conversion rate (policy) which is adjusted from time to time.