Rewards programs are popular, but come with a price
It can be tempting to use your card for virtually every purchase in return for rewards. Save up your points and, at the end of the year, there could be enough to cash in for a valuable gift. Who could say no to a free family vacation worth thousands? In addition to free trips, rewards credit cards can offer free groceries and other products and services.
To the average consumer, gifts from rewards credit cards appear free, but when it comes down to it, they really aren't.
The people who really pay are the retailers through increased credit card fees, though there are few benefits to do so. In one scenario, a small business could end up paying more than $10,000 a month in added fees.
Rewards programs are funded through merchant interchange fees initially paid by the retailer, but the cost is passed down into the price of the goods that you buy. Consumers don't seem troubled by the fact that they may be paying more for the goods and services they purchase, as long as they get something free out of it.
Everywhere we turn, we are being offered a rewards credit card for this, a rewards credit card for that. Soon our wallets are bursting with rewards credit cards, with little thought that without them, we may have had cheaper prices at the supermarket.
According to Colloquy, a market research arm of LoyaltyOne, which owns the Air Miles program, Canadians are mad for rewards programs. There are 114 million active members of rewards credit cards programs in Canada. That adds up to four rewards credit cards for every single person.
Retailers feel they need to accept all types of credit cards or risk losing the business to someone else, despite the higher costs associated with accepting rewards credit cards.
Meanwhile, the Consumers Association of Canada opposes any action that would reduce the value of rewards programs, either through a cap on interest or fees.
Costs are passed down to consumers in the form of increased pricing, but for now, Canadian consumers remain oblivious to the impact rewards credit card programs have on the prices of the goods and products they purchase, as long as they can get a free gift in the process.
Written by Melanie Dixon
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