Why Do Banks Offer Rewards On Credit Cards?

Nowadays, the rewards and benefits offered by credit cards attract people more than the credit limit attracts them. People don’t just apply for a credit card that offers a decent credit limit, but they look for the features and benefits of that particular card. The benefits of credit cards are not just limited to rewards/cashback now, but these cards come with several other privileges. But, an important question that might come to your mind is: Why do card issuers or banks are offering so many rewards? You might be wondering how it can be beneficial for the card issuer to offer reward points and cashback to the users. In this article, we will try to answer this in the best possible way. Keep reading to understand it further!

Reasons Why Credit Card Issuers Offer Rewards/Cashback

Credit Cards do offer reward points/cashback, but this is not entirely to benefit the customers. Nothing comes for free and so is the case with reward points. The following are some of the most appropriate reasons why credit card issuers offer rewards/cashback on your spends:

To Attract More Customers

Every bank and credit card issuer wants to expand their customers and they keep launching exciting offers & deals to attract more and more customers. This is one of the foremost reasons why banks offer rewards or cashback. When people see a credit card with loads of rewards and benefits, they want to get it and sometimes, they are even ready to pay a high annual fee for the same. Card issuers also offer credit cards in different categories so that every segment of people can find a credit card suitable for their requirements.

Some banks play very wisely while offering credit card benefits. For example, Axis Bank offers two co-branded shopping cards in partnership with Flipkart. By offering these cards, Axis Bank has tried to attract every Flipkart loyal customer as no other card offers better rewards on shopping via Flipkart. Similarly, the Amazon Pay ICICI Credit Card has also become a choice for thousands of individuals who prefer Amazon for online shopping.

To Accelerate Credit Card Spending Among Existing Customers

If you are a credit card user for a long time, you might be aware of the fact that card issuers earn more money when you spend more. Not directly, but as you spend more on your credit card, there are chances that you will not make the full bill payment and hence, interest would be charged on the outstanding amount. This interest is one of the important ways to earn money for card issuers and banks. This is why banks offer milestone-based benefits and spend-based waivers of annual fees along with the reward points or cashback that you earn.

All these rewards encourage the users to spend more and more to gain more rewards. Sometimes it may result in overspending, but that is never a good idea. If you are a credit card user, you must be responsible enough to use credit cards for your benefit and not for overspending. It is good to make everyday spends using a credit card, but never go for unnecessary purchases as only you will have to repay this money later.

To Beat The Competition

There are various banks and card issuers that offer n number of cards with exciting benefits. In such a competitive market, it becomes essential for card issuers to come up with some exceptional rewards to stand out in the market and attract customers. Along with these rewards, card issuers keep launching short-term as well as long-running offers in order to offer something exceptional and different from other banks.

Bottom Line

Bank/Card issuers offer reward points/cashback with a well-planned strategy to grow their customer base. As a cardholder, you should keep in mind that getting tempted by these rewards and offers is not a very good idea. Some people tend to spend more than they can afford just to earn more reward points. These rewards and benefits undoubtedly help you save a lot but only as long as you are using your card wisely. So, just make the necessary purchases and try to maximize your credit card rewards without overspending!