In the case of reward points, every time you use the card for a specific amount, you get a few points. For instance, for Rs 100-150 spent on the card, you usually get 1-5 points. Each point earned can be worth Rs 0.25-1. A minimum amount must be spent per transaction to earn reward points. Different categories of spends give you different points. For instance, with the SBI Signature Elite credit card, for every Rs 100 spent on dining, you get 10 reward points. On other purchases, you get two points. On reaching certain spending milestones, some banks offer extra reward points.
allow redeeming reward points only against pre-specified vouchers, spend-types, air miles programmes, etc. “Some card issuers also allow adjusting accumulated reward points against outstanding bills,” says Kukreja. Most banks let you redeem via net banking. If you don’t redeem your points on time, they lapse. For instance, HDFC Bank Diner Club Rewardz reward points are valid for two years. Comparing cashbacks with rewards points, Ashita Aggarwal, professor marketing and chairperson, PGMPW, SPJIMR, says: “When the customer is shopping during a festival season, say, Diwali, he wants short-term gain. For him cashback works better because he sees something coming back to him instantly. It adds to his disposable income and allows him to buy something more. In his mind, it’s almost like a cash discount.”
Reward points work if you want the benefits of an enduring, loyalty-based relationship with the bank. Redeeming points requires some action on your part. Says Aggarwal: “With reward points, you put the onus on the customer to do something. Chances are very few customers would do it. There is a psychological and a time cost involved. A customer perceives value by total cost, both monetary and non-monetary. Whenever you ask her to redeem reward points, you increase her non-monetary cost.”
Adds Kukreja: “Most card issuers charge redemption fees for redeeming the reward points and have expiry periods for them.” Unless you are sure you will redeem your reward points, go for cashback this festive season.