By Katie Deighton
American Express Co. executive Rachel Stocks pored over consumer data in the weeks after coronavirus lockdown measures took hold in the U.S., trying to imagine what credit-card rewards should look like in the Covid-19 era.
Cardholders increasingly were cashing in their loyalty points for items such as hair dryers and golf balls in place of flights or hotel stays, she said.
"I guess they were having to do their own hair," said Ms. Stocks, the company's executive vice president of global premium products and benefits, "and golf was the only sport they could play while social distancing."
Then she set about helping American Express cards' rewards programs fit the times.
Credit-card issuers' revenue has been hit by declining consumer spending during the pandemic and its resulting economic disruption.
But the card companies also are grappling with a longer term issue: keeping customers happy with rewards that suddenly look a lot less enticing, especially in the realm of travel.
The customer satisfaction rate for the credit-card industry fell 1% in May from prepandemic levels, according to J.D. Power's 2020 U.S. Credit Card Satisfaction Study. The drop appears small, but in the years before 2020, the industry performance had been trending up by 0.5% annually for some time, said John Cabell, director of banking and payments intelligence at the data firm.
"There are cardholders who are paying an annual fee who have experienced a significant drop in customer satisfaction with rewards, and their perception of the amount of rewards gained per dollar spent," Mr. Cabell said.
Card providers can't afford unsatisfied customers, particularly those that pay for cards with hefty travel-rewards programs, said Brian Kelly, the founder and chief executive of travel website The Points Guy LLC.
"All these reward cards are based on aspirational perks, like access to a lounge at the airport, and that rug was pulled out from underneath customers who were paying like $550 for a travel card," he said.
"Travel programs are huge profit centers, so all of the issuers have made pretty quick moves on rewards to stave off mass card cancellations, " Mr. Kelly added.
American Express is trying to make customers feel like they are still getting a good deal while grounded at home.
It has rolled out a number of limited-time offers on some of the cards it co-brands with travel firms, offering Marriott Bonvoy Business cardholders 10 points per dollar spent at domestic gas stations and restaurants, for example.
It also has issued Business Platinum customers with extra statement credits for purchases from Dell Technologies Inc., and is giving all U.S. consumer and corporate cardholders a complimentary yearlong premium subscription to the meditation app Calm.
Other players are taking similar strategies.
Capital One Financial Corp., for example, began letting its Venture and VentureOne customers redeem their miles on restaurant delivery, takeout and streaming services from certain merchants until Sept. 30. These cardholders also can earn extra miles by ordering through Uber Eats. Meanwhile, Capital One's Savor Rewards customers can earn 5% cash back on orders through the delivery platform, and 4% cash back on subscriptions to streaming-video services such as Netflix, Hulu and Disney+.
Matt Knise, the head of Capital One rewards, said his team made those moves after analyzing spending data and speaking directly to customers.
"If we'd just looked at the data, it would have been easy to say, 'Let's only look at categories that were going up, like grocery and pharmacy,'" Mr. Knise said. "But what we heard over and over again when talking to customers was they view their rewards as something a bit more aspirational -- a bit more 'treat yourself' -- which is why we really decided to home in on things like deals for streaming services and restaurants."
HSBC Bank USA NA also spoke to customers to figure out what they wanted benefits to look like in the Covid era, rather than relying solely on spending data, said Nancy Armand, the bank's senior vice president and head of cards portfolio management for wealth and personal banking,
The company runs an online customer community where people post information about what they are spending money on and, crucially, what they want to spend money on. The group became very valuable in helping the company track consumer sentiment around spending and rewards during the pandemic, Ms. Armand said.
HSBC's midpandemic campaigns have included adding rewards such as a 20% discount on items redeemed with reward points, and the opportunity for customers to earn more points back on groceries and home improvement products
JPMorgan Chase & Co. and Mastercard Inc., meanwhile, are introducing a new product on Sept. 15 in response to consumers' demand for rewards, particularly on digital transactions. The new Chase Freedom Flex card will offer perks such as 5% cash back on rides from Lyft Inc. and a complimentary three-month subscription to the premium service from DoorDash Inc., the delivery platform.
Card providers that move quickly to match their reward programs to consumer spending will improve satisfaction over time, said J.D. Power's Mr. Cabell.
They should, however, avoid letting new perks make their rewards programs too complex, Mr. Cabell added. "Customers tend to get confused by a complicated rewards program, and dissatisfaction often follows confusion."
Write to Katie Deighton at email@example.com