Credit Card Reward Points Investigated

With a saturated market of available credit cards, offerings need to provide increasingly more value-added features with their cards to differentiate themselves from the similar basic functionality offered by all credit cards. But with so many added features being offered in such a wide range of forms it is hard to know if these features are really adding any practical value to the user.

One of the most popular added features offered to customers is rewards points based on a percentage of the value of purchases made. In order to evaluate the value of these rewards systems to the end user it is necessary to compare a simple rewards system, like that of PC Financial, against the much more complex offering of the RBC Royal Bank Rewards Gold Visa card. With each card being offered to me around the same time while in the same financial situation the assumption is that these two institutions consider the cards to be for a similar user.

The PC Financial World MasterCard makes use of an extremely simple system for earning and redeeming points. Purchases made at PC stores (Loblaws, GCSS, etc.) earn the user 20 PC Points for every dollar spent. All other purchases earn 10 PC Points for every dollar spent. This means that the cost of one point is $0.05 and $0.1 respectively. Redeeming these points is also very simple. PC Points can be used towards future purchases at PC stores at a rate of 1000 PC Points per dollar. This means that the “dollar to dollar” conversion rate (number of dollars spent to earn one dollar back) is 50/1 for purchases made at PC stores and 100/1 for all other purchases.

While the PC Points system is straightforward enough that is could very well be equated to a cash-back system (another form of value-added) the liquidity of the points is restricted slightly by only being redeemable at PC stores. This can be a non-issue if you do your grocery shopping at a PC store anyway as you can just use the points then. Another consideration is that the effectiveness of the increased number of points earned at PC stores is also only as helpful as the availability, affordability, and frequency of use of the PC stores. If one shops at PC on a regular basis then there is more value to be had.

Things are not quite as simple when it comes to the RBC rewards system. RBC Rewards Points (on the Rewards Gold Visa) are earned at a rate of 1 point for every $2 spent on all purchases. While this structure for earning points is quite simple, it is the system for the redemption of these points that is overly complex. User can choose between the following redemption mechanisms: Payback with Points, giftcards, flights, and merchandise.

Choosing to “Payback with Points” users can pay off their credit card bill using their RBC Rewards Points. The payback rate is constant with payback amounts of $25, $50, $100, $250, and $500 costing 4300, 8600, 17200, 43000, 86000 RBC Rewards Points respectively. This is a value of 175 points/dollar resulting in a “dollars to dollars” conversion rate of 344/1.

Users can choose to redeem their points for giftcards from a variety of partnered retailers. Users are able to redeem their points for giftcards in $25, $50, $100, and $250 denominations for 3500, 7000, 14000, and 35000 RBC Rewards Points respectively. This results in a constant value of 140 points/dollar which results in a “dollars to dollars” conversion rate of 280/1.

Flights are redeemed at 100 points/dollar which results in a “dollars to dollars” conversion rate of 200/1.

Merchandise is the most complex of all the RBC Rewards redemption options. Different sections of the online merchandise store offer different points/dollar and “dollars to dollars” rates. Certain retailers (like apple and bestbuy) also have their own storefronts which also offer differing rewards values as well.

The following is a chart with some example of items pulled from different merchandise sections of rewards site:

The “dollars to dollars” conversion rates vary wildly from 178 on the low end all the way up to 307 at the top. The better value (lower dollars to dollars ratio) items all came from the Best Buy storefront while the other two items were from the general merchandise section.

Using the “dollars to dollars” conversion rate the chart bellow outlines a comparison of the differences between the rates at PC compared to those found in the different sections of the RBC Rewards website.

The PC Points system stayed at a constant “dollars to dollars” conversion of either 50/1 or 100/1 depending on if the points where earned at a PC store or not. The RBC Rewards Points system seemed to provide it’s best value through the Best Buy store-front with a “dollars to dollars” conversion of 178/1, while its worst value was the “Payback with Points” options at 344/1.

Using these number you can see that even if a user was to never make a single purchase at a PC store with their PC credit card they would still be able to convert those points for nearly twice (100 vs 178) that of the best value RBC Points option. The value only gets better when the user makes more purchases at PC stores.

This comparison is great example of how a complex rewards system like the one in place at RBC may seem like a great deal until you actually break down the numbers. While it is unlikely that RBC intentionally tries to rip off their users, they cannot be unaware of the practical implications such a complex rewards system has on a users understanding of how the system works and whether it is actually of value.