The Future of Frequent Flyer Programs: No More Credit Card Rewards But We’ll Use Our Points to Go to Mars

Reader Jed asks,

In the distant future when travel through space is common, do you think that there will be frequent flyer programs like we have now? Will one billion miles get you a free trip to Mars (two billion for a lie-flat seat)?

Although I won’t make any claims about what the future of space travel will look like (I’ll leave that to @BoredElonMusk) there will absolutely be loyalty programs in the future in substantially the form that we have now.

Loyalty Programs Are the Fundamental Marketing Insight

As long as there are products and services that consumers freely choose to purchase, there will be marketing. And frequent flyer programs are the most successful marketing vehicle that has ever been created.

If the core of marketing is figuring out who your customers are and finding more people like them, frequent flyer programs allow amassing significant data about your customer base — from past transactions, to payment patterns, and across multiple platforms. It’s not just flying, but staying and renting and buying. These are huge big data operations that allow for micro-targeted marketing, amongst a large potential customer base that has given permission to be e-mailed.

What’s more, the fundamentals of any system that encourages repeat business are precisely the core tenets of frequent flyer programs: recognize and reward. Elite programs, and rebates — and rebates in the perfect form, products that are cheap for a loyalty program to provide (spoiling inventory) that are highly desired by the target market (aspirational travel).

These are the fundamentals of frequent flyer programs that I’ll suggest are more likely to be emulated across other businesses than they are to be scaled back.

Which isn’t to say that miles and points will be earned in the same way, or the same proportions, that they are today.

Credit Card Rewards Will Decline in Importance

I believe that credit cards will be less important in the future than they are today. Because frequent flyer programs are such powerful motivators, they become the preferred rebate currency that banks use to incentivize transactions using their products across their preferred payment networks.

But in the future the margins on credit card transactions will shrink so there won’t be a role for incentivizing transactions to the same degree, or at the same level of expense. It simply won’t make sense for banks to buy so many miles to reward credit card customers once their margins shrink.

There simply isn’t a future for 3% merchant fees for accepting credit cards. New technologies will compete down the price of processing payments. Those technologies may not be bitcoin, or even block chain-related. But new payment technologies, over the next decade, will cause American Express, MasterCard, and Visa margins to shrink.

No bank will buy a mile for a penny, or rebate 2%, in world where merchant fees look more like 1% than 3%.

Rewards debit cards have pretty much become extinct (at least in any way where they drive real value) as debit card interchange fees fell to near-zero. In that case it was because of legislation (the Durbin Amendment to Dodd Frank financial reform). A similar thing will happen over a long period of time to rewards credit cards, because of competition.

Space Travel Will Be Possible

As for redeeming miles for space flight, US Airways used to have a 10 million mile redemption for suborbital flight (American Express Membership Rewards wanted 20 million points for the same thing). Virgin will let you enter a drawing for 2 million miles.

Clearly there are ‘tailored travel’ rewards where if you have enough points the provider will buy you whatever you wish at a poor value per point. That will probably come first.

However, if there’s frequent space travel there will be space travel rewards. And if people are regularly traveling to Mars on a commercial basis, there will be rewards and free trips as well. It won’t just be Venus envy.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. As long as it does not happen in my lifetime. I can’t take any more change. Although there is probably plenty more to come.

  2. There will have to be a very significant change in the retail environment for competition, rather than regulation, to drive down credit card transaction fees. Essentially, as long as it remains unacceptable for retailers to charge more for certain cards, then there is no incentive on the card issuers to lower costs – instead they will continue to raise them.

    As a retailer, currently I subsidise credit card transactions (essentially wealthier people) against debit card or cash transactions (essentially poorer people). I find it painful (in terms of my margin) and ethically wrong, but I cannot either charge more for credit cards or less for cash or debit cards. A regulatory change could help but, without that, there is every incentive for Amex to increase its charges, and pay a greater rebate to its customers, than to decrease its charges.

  3. people often forget the numerous benefits to accepting credit cards, from increased spending, same or next day cash settlement, reduced theft, reduced bank activity (less need to go to bank to deposit a boat load of cash), that the credit card fee can be worth it in many industries.

    I agree there will be more competition but don’t see a significant reduction in card issuers margins or the disappearance of credit cards anytime soon.

  4. Remember that merchant fees on Visa and MC are being cut to 0.3 per cent across the EU next year. Your 1 per cent base line is 333 per cent higher than what will happen here.

    How long do you think Wal Mart etc will stand for paying 0.3 per cent in Europe and 1.75 per cent in the U.S.?

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