The Rewards Ruckus: When Loyalty Programs Go Rogue

Commonwealth Bank’s (CBA) overhaul of its loyalty program has sparked outrage among Qantas Frequent Flyer points enthusiasts. At first glance, CBA’s new “Yello” scheme appears to reward customers for everyday banking activities by earning points on home loans, savings accounts, insurance, and cards. However, the devil is in the details: CBA has struck a deal with Virgin’s Velocity program offering more generous conversion rates for Yello points than Qantas Frequent Flyer.

This move follows the Reserve Bank of Australia’s decision to ban credit card surcharges from October 1, which will cut banks’ revenue by $660 million annually. In response, CBA and other banks are adapting their loyalty programs to maintain profitability. Westpac has announced fee hikes and cuts to benefits such as free travel insurance on its credit card lineup.

For Qantas loyalists who have built up a stash of Frequent Flyer points over the years, this news is disheartening. The partnership between CBA and Virgin’s Velocity program creates a disincentive to accumulate Qantas points, making it more attractive to opt for the “easier” rewards of the new Yello scheme. This is particularly galling for those who have already set up their Commbank credit card to earn Frequent Flyer points.

Adele Eliseo, publisher of rewards advice website The Champagne Mile, suggests that CBA’s move aims to reduce “opportunistic credit card churners” – individuals who take advantage of generous sign-on bonuses by switching banks. By promoting stickiness and encouraging customers to remain loyal to the bank, CBA may be attempting to minimize revenue losses from the surcharge ban.

However, this shift in loyalty program dynamics raises concerns about the commodification of rewards. As Point Hacks spokesman Daniel Sciberras notes, “Velocity points may be easier to earn, but [the points difference between Qantas and Virgin] won’t necessarily sway rusted-on Frequent Flyer point collectors away from CBA.” This suggests that consumers who are deeply invested in loyalty programs may still prefer the benefits of Qantas Frequent Flyer, even if they come at a lower conversion rate.

Virgin Velocity chief executive Andrew Cleary believes that the simplicity of CBA’s new scheme will increase its uptake. With the surcharge ban looming and banks looking for ways to adapt, it’s likely that more consumers will be drawn to Yello points as a means of redemption. But at what cost? The erosion of Qantas Frequent Flyer’s value may have far-reaching consequences, not only for CBA customers but also for the wider loyalty program landscape.

The changing rewards landscape is driven by banks recognizing their loyalty programs as vital revenue streams rather than mere customer courtesies. As consumers navigate this complex terrain, they must understand the implications of these changes and make informed decisions about their loyalty program participation. The question remains whether these programs will prioritize consumer interests or continue to be driven by profit motives.

The rewards ruckus has only just begun, with uncertain consequences for both CBA customers and the broader loyalty program landscape. Will CBA’s Yello scheme prove to be a game-changer for consumers, or will it ultimately prioritize the bank’s bottom line?