Both cards offer online “payments” with points
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• • • By Doug Miller, senior analyst for banking and cards at Corporate Insight |
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Two card giants both strike deals with the book and nearly everything else giant on the internet? We took a look at both.
• Discover recently announced a new partnership with Amazon, enabling users to pay for items on Amazon.com with their Cashback Bonus Rewards earnings.
As announced online and through a press release, the new Discover integration with Amazon offers cardholders the ability to link their Cashback Bonus rewards program as a payment method on Amazon, with $1 in Cashback Bonus worth $1 in purchases from Amazon.
In addition to the announcement on the Discover site, Amazon.com also added an informational page about the new partnership.
• American Express has also partnered with Amazon, allowing AmEx card holders to use Membership Rewards points to pay for items on Amazon.
While the two partnerships are similar, with each requiring users to link their credit card rewards program to their Amazon.com account and then select the rewards account as the desired payment method during checkout, there are naturally some differences. Most notably, the two programs use a different rewards structure, with AmEx using a points-based earning program and Discover’s Cashback Bonus generating dollar-denominated rewards.
With the announcement of the new Discover partnership, we wanted to see whether AmEx or Discover is offering their clients a better rewards value through Amazon. To do this, we dug into each firm’s Real Rate of Return, a process we have used in the past to examine various areas of the credit card rewards landscape, such as Gas Cards.
While the two partnerships are similar, with each requiring users to link their credit card rewards program to their Amazon.com account and then select the rewards account as the desired payment method during checkout, there are naturally some differences. Most notably, the two programs use a different rewards structure, with AmEx using a points-based earning program and Discover’s Cashback Bonus generating dollar-denominated rewards.
With the announcement of the new Discover partnership, we wanted to see whether AmEx or Discover is offering their clients a better rewards value through Amazon. To do this, we dug into each firm’s Real Rate of Return, a process we have used in the past to examine various areas of the credit card rewards landscape, such as Gas Cards.
When looking at Real Rate of Return, we strip away the differences between each firm’s rewards program earning structure to find out how much card spending it takes to earn a specific reward. To ensure an apples-to-apples comparison between Discover and AmEx we chose the widely-available (and uniformly priced) iPod Touch 8G (4th Gen). Regardless of where this item is purchased, it always costs $199 for a new unit.
Discovering Discover’s technique
At Discover, the base earnings rate for users of the More Card, the main card that feeds into the Cashback Rewards program, is 0.25% for the first $3,000. Once they’ve surpassed the $3,000 threshold, however, this surprisingly low rewards rate is replaced by 1% on all other purchases for the remainder of the calendar year.
In addition, each quarter Discover offers a 5% Get More promotion on a specific type of purchase. This reward is not applied automatically, as users have to sign-up for the promotion online or over-the-phone, and even then, the accelerated rewards earnings typically only apply to the first $200-$800 in spending in the promotional category--a drawback. (For the purposes of our analysis, we assumed a $400 limit on the 5% earnings each quarter, for a maximum accelerated Cashback Bonus earnings of $20 every three months.) Given the parameters of the More Card’s rewards earning, we found:
• If a client makes no purchases that fall within the 5% promotions they will need to spend $22,150 on their card in one year to earn enough to redeem the iPod Touch from Amazon.
• Even if they max out their quarterly Get More promotions, they would still need to spend $15,750 on the Discover More card to have enough Cashback Bonus earnings to purchase the iPod Touch.
Based on the above figures, which take into account that the first $3,000 in general purpose spending each year will generate only $7.50 in rewards, users will experience a Real Rate of Return of either 0.90% (no accelerated earnings) or a more robust 1.3% (with accelerated earnings). By comparison, the traditional rate of return for in-house credit card rewards programs is an even 1%.
At Discover, the base earnings rate for users of the More Card, the main card that feeds into the Cashback Rewards program, is 0.25% for the first $3,000. Once they’ve surpassed the $3,000 threshold, however, this surprisingly low rewards rate is replaced by 1% on all other purchases for the remainder of the calendar year.
In addition, each quarter Discover offers a 5% Get More promotion on a specific type of purchase. This reward is not applied automatically, as users have to sign-up for the promotion online or over-the-phone, and even then, the accelerated rewards earnings typically only apply to the first $200-$800 in spending in the promotional category--a drawback. (For the purposes of our analysis, we assumed a $400 limit on the 5% earnings each quarter, for a maximum accelerated Cashback Bonus earnings of $20 every three months.) Given the parameters of the More Card’s rewards earning, we found:
• If a client makes no purchases that fall within the 5% promotions they will need to spend $22,150 on their card in one year to earn enough to redeem the iPod Touch from Amazon.
• Even if they max out their quarterly Get More promotions, they would still need to spend $15,750 on the Discover More card to have enough Cashback Bonus earnings to purchase the iPod Touch.
Based on the above figures, which take into account that the first $3,000 in general purpose spending each year will generate only $7.50 in rewards, users will experience a Real Rate of Return of either 0.90% (no accelerated earnings) or a more robust 1.3% (with accelerated earnings). By comparison, the traditional rate of return for in-house credit card rewards programs is an even 1%.
Assessing AmEx’s promotion
At AmEx, the rate at which rewards points are earned is more favorable than at Discover, but the use of points on Amazon is not as clear cut. For clients with the American Express Green Card, an entry-level charge card that feeds into the Membership Rewards program, users earn 1 point per $1 spent, plus 2 point per dollar spent on purchases made through the American Express Travel website. When visiting Amazon.com (for an account with Membership Rewards integration set-up), the checkout process shows that purchasing the iPod Touch 8G model requires redeeming 28,429 Membership Rewards points.
At AmEx, the rate at which rewards points are earned is more favorable than at Discover, but the use of points on Amazon is not as clear cut. For clients with the American Express Green Card, an entry-level charge card that feeds into the Membership Rewards program, users earn 1 point per $1 spent, plus 2 point per dollar spent on purchases made through the American Express Travel website. When visiting Amazon.com (for an account with Membership Rewards integration set-up), the checkout process shows that purchasing the iPod Touch 8G model requires redeeming 28,429 Membership Rewards points.
Using the same basic breakdown as we did above for Discover, we can see that without accelerated earnings, an American Express cardholder will need to spend $28,429 on their card to have enough points for the iPod, or $21,321 dollars if half of their annual spending is in the double rewards-generating AmEx Travel center.
These figures give us Real Rates of Return that are below those of Discover, with clients realizing a rate of return of 0.70% or 0.93% on their card purchases, respectively. When looking at the Real Rate of Return from these two Amazon partners, it becomes clear that the new Discover More partnership offers clients a more attractive return on spending than the American Express partnership.
These figures give us Real Rates of Return that are below those of Discover, with clients realizing a rate of return of 0.70% or 0.93% on their card purchases, respectively. When looking at the Real Rate of Return from these two Amazon partners, it becomes clear that the new Discover More partnership offers clients a more attractive return on spending than the American Express partnership.
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