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the future of money

How Canadians interact with money - both physical and digital - is changing as financial technology evolves.

Rewards programs are on Canadians’ minds. Air Miles points older than five years will start expiring at the end of 2016, and collectors are rushing to figure out what to do with them. Amid the rush of redemptions and clogged call-centre lines, a question unfolds: Is this the future of rewards points?

For Air Miles, at least, yes – the company, despite the negative publicity, plans to stick with the program. But experts and other rewards providers, such as Aeroplan, suggest expiry dates aren’t the most effective way to convince people to redeem old points, pointing to measures such as minimum transaction requirements to keep members engaged.

That’s just one fork in the road for the loyalty-program industry, however. The future lies in harnessing data to make these programs – be they for travel or not, attached to a credit card or not – seamless, secure and easy for consumers. And by leveraging the data, programs are likely to offer smaller, incremental rewards to keep collectors engaged, and access to special benefits just for being members.

Loyal to loyalty


The number of Canadians carrying at least one loyalty card.


Number of loyalty cards the average Canadian has in their wallet.


the number of Canadian consumers who use loyalty cards “frequently” to rack up points or miles.


The number of travel-rewards credit cards offered by the Big Six Canadian banks including MBNA co-branded and affiliate cards as of the end of 2015.


the number of cash-back credit cards offered by the Big Six Canadian banks including MBNA co-branded and affiliate cards as of the end of 2015.

Source: 2015 Yahoo! Canada “Talking Loyalty” study and

Modern rewards programs are generally regarded to have started in 1981, when American Airlines introduced its “AAdvantage” travel-rewards program. In the ensuing 35 years, the shape of loyalty programs has shifted drastically, with countless proprietary programs and major rewards coalitions emerging across the world.

They have become synonymous with credit-card use, too. Two decades ago, credit cards lured customers who were more focused on debt management, says Sean McQuay, credit-card expert with the website NerdWallet and a former Visa strategist; but there has been “a mindset shift from a debt-oriented credit-card product to a rewards-oriented credit-card product.”

A 2015 American Bankers Association survey of 1,006 U.S. residents found that 83 per cent of credit-card users had a rewards program connected with their cards – up from 77 per cent in 2012. As rewards programs become more ubiquitous, they’re fighting to differentiate and stand out.

“It’s now becoming more about experiences that programs can provide,” says Calgary’s Patrick Sojka, the rewards-program expert who founded

He points to the fine-dining event access that can come with American Express membership. Air Miles, meanwhile, has partnered with NBA Canada and concert promoter Live Nation to deliver special deals aimed at millennials. The company even offered to haul camping gear for members attending this year’s Pemberton Music Festival in British Columbia.

“How do you [make] the experience of being a member of a program worth even more?” asks Rachel MacQueen, Air Miles’s vice-president of marketing. Going forward, she continues, “I think that idea of reciprocity, and how you extend what it means to be a member of a program, is going to be important.”

Reciprocity is a crucial factor when you consider that loyalty or rewards programs rely on the members’ data for their very livelihood. “They’re expecting what we call a value exchange in return,” says John Boynton, Canadian chief marketing officer at Aimia Inc., which runs the popular Aeroplan rewards program. “That expectation is going to keep going up, and people need to keep meeting that benchmark for consumers or they’re going to stop giving data as a result.”

The result is that rewards coalitions, such as Aimia and Air Miles parent LoyaltyOne Co., have effectively become data analytics firms, crunching numbers to track customer behaviour and in turn lure them to spend more with retail partners.

“Take a gas company or bank or airline or hotel. It’s how we use data to help them acquire customers more efficiently and effectively,” Mr. Boynton says. “To get them to repeat their usage faster. So adoption, then repeat.”

The cost of data collection, analytics and security is becoming cheaper with time, and rewards companies have access to enormous swaths of information. Data can be collected from call centres, web and mobile traffic, transactions themselves. The key, both Aimia’s Mr. Boynton and Air Miles’s Ms. MacQueen say, is to know what you plan to do with the data before ingesting it.

“We think less about big data and more about the right data,” Ms. MacQueen says.

This information helps rewards programs to become remarkably tailored for each user. Long gone are the days where most programs let you collect miles for one specific airline. There’s been a shift to cash-equivalency over points – giving more vendor and timing options – and a wide range of options for program members to cash in points for smaller, customized rewards.

Contact with customers can become more frequent and tailored, too – so that ideally, they only get marketed things that they want. “We know you were looking at barbecues, so maybe you want some utensils to go along with that barbecue,” Mr. Boynton says.

But there is another trend in rewards, too, in the near-opposite direction.

“There’s a gold rush, I feel, to compete for the simplest rewards product,” Mr. McQuay says. Straightforward cash-back programs like Air Miles Cash and American Express SimplyCash are gaining traction for the simple reason of being simple. “There’s been some burnout as far as credit card rewards go,” says Mr. McQuay. “A lot of people tried to play the game in the last decade and got tired of it.”

For card-specific programs, rewards might not remain lucrative. Interchange fees – what credit-card companies charge retailers to process transactions – help fund loyalty programs, but face increasing pressure to be dropped from retailers, regulators and alternative technologies, says rewards expert Gary Leff, chief executive of Miles and Points Consulting LLC.

“With lower processing costs for cards, there are going to be lower margins to fund rewards,” Mr. Leff says. “I do believe ... in 10-15 years, we’re looking at a dramatic reshaping of the credit-cards rewards market.” This could result in higher-fee cards, or more creative vendor partnerships, to shift the revenue model. But he doesn’t expect such programs to go away.

“As long as the products themselves are profitable, there’s going to be marketing spend in order to gain consumer uptake of the product, consumer use of the product, and it’s going to remain a competitive marketplace,” Mr. Leff says.

Here’s another issue he sees in the sector going forward: trust. “A lot of loyalty programs haven’t been particularly good on the trust front,” Mr. Leff says. Programs are often tweaked and points can be devalued, making consumers feel the rug has been pulled out from beneath them. Keeping customers happy is crucial, especially when the market for rewards programs is a big one. “You’re trusting that the value proposition will still be there when it comes time to use your points,” he says.

“You’re not going to trust traditional currency in a hyper-inflationary environment. I think a major issue is one of how these proprietary currencies, with no independent central bank, are able to maintain the trust of their consumers, when there’s always this temptation to shave off the costs in a given quarter – especially for a public company – with that short-term financial incentive. There’s a tension that’ll have to be navigated going forward.”

Air Miles is feeling that tension right now, as customers face complaints of long call waits and a slow website – and, as CBC has reported, a frustrating variation of rewards among members.

Ms. MacQueen says her team at Air Miles “don’t have any plans to change” the five-year point-expiry deadline. (Aeroplan, on the other hand, got rid of a seven-year deadline in 2013, instead requiring users make one transaction a year for points to stay active.)

“What we want is to engage collectors,” Ms. MacQueen says. “We give back to collectors $600-million of rewards value every year. We expect that to go up this year. In fact, we’re seeing new collectors redeem for the first time in the program. We’re seeing great engagement on our website. And that’s what we want – we want collectors to be engaged in the program. People that redeem are more engaged after the redemption activity.”

Air Miles has huge market share in Canada – the company says it is in two-thirds of all households – and while the expiry tactic helps get points off the books and reduce liability for the company, experts suggest it doesn’t look great for members.

“A lot of people are mad about it,”’s Mr. Sojka says. “I’ve never been a fan of putting a time stamp on. I agree with inactivity rules; if you’re not using a program after a time, they can expire your account,” rather than take points from active collectors saving for something big.

Mr. McQuay says, “There are other ways to go about it – you can incentivize them with short sales that have low redemption values. But telling people their hard-earned cash is disappearing never goes over well.”