The future of pay with rewards: Innovations and trends shaping the fintech landscape

One of the benchmarks of a thriving and growing economy is the freedom with which consumers spend their money. In fact, a Barclay’s report suggests that domestic consumption will be a primary driver for India’s growth, with discretionary consumption tripling to a significant $2 trillion by 2030.

With private consumption at over 58% of GDP in 2023, consumer spending on households and personal goods is one of the factors behind India's economic resilience in the midst of several global and domestic upheavals.

A vast young and digitally-savvy working population fuels this spending with their aspirations for quality of life and upward mobility. Consumers have embraced available credit in the form of cards, digital wallets or buy-now-pay-later schemes, all enabled by a robust UPI-based financial backbone. But in the consumer-led digital world, the competition for loyalty is fierce, which is why credit providers put significant efforts into incentivising loyalty through rewards.

Similarly, D2C brands, online and offline grocery, clothes and shopping apps, even entertainment and leisure apps and brands offer loyalty and rewards. The lure and excitement of rewards, always exciting for the value-seeking Indian consumer is a growing economic phenomenon - the loyalty market in India is slated to reach $5.37 billion in 2024.

Fueled by technology and regulation

Credit cards remain a popular way for consumers in India to finance their lifestyle and ambitions. According to Bankbazaar's Moneymood 2024 report, the number of outstanding credit cards crossed 94.7 million in October 2023, which resulted in credit card spending soaring to record levels of Rs 1.79 lakh crore. RBI’s recent regulation around card network portability allows consumers to choose networks – VISA, Mastercard, or RuPay.

It also restricts banks from entering into exclusive partnerships with credit cards. Recently, RuPay became the first to integrate with the UPI network.

These recent developments have made it easier than ever for consumers to use credit options to make purchases. With credit cards on UPI picking up, rewards will now take centre stage.

Additionally, the integration of RuPay credit cards with UPI has unlocked a treasure trove of potential for both issuers and merchants. By tapping into the vast network of 83 lakh POS devices and 30 crore UPI QR codes, card issuers have witnessed a remarkable 36-fold increase in their business potential compared to before.

This translates to a massive 36 times more revenue through interchange fees and other issuer income. This revenue will be used to fuel further rewards on UPI, to tap into the potential of the Indian consumer’s purchasing power.  

Loyalty in consumer’s minds

Despite its lure, loyalty programmes and reward payments have often faced headwinds. Consumers join such programmes anticipating instant gratification, but they must often wait too long before earning sufficient points to make a difference to their needs. Also, rewards have been mainly unidimensional or focused on a few value propositions, such as discounts and redemption points.

Similarly, a lack of personalisation coupled with generic rewards has been a major deterrent for consumers who are increasingly looking for a premium experience.

Despite the fact that consumers are excited by rewards, the multitude of loyalty programmes and their complex structure makes it difficult for consumers to actually benefit. Consumers also deal with fragmented reward programmes from almost every brand, franchise, credit card company, merchant, and other reward point issuers, with no option to have a dashboard view, understand the savings potential and have a single redemption across platforms.

Today, consumers are increasingly seeking rewards that can be automatically applied and made redemption-ready instead of having to go the extra mile of keeping a tab on them.

The future of paying rewards

On the upside, these very challenges are leading the financial technology (fintech) industry to innovate ways in which consumers can be empowered to redeem rewards.

The fintech infrastructure is firmly in place to enable every benefit to consumers via their mobile phones, and to ensure that payments are simple and easy. With the future of payments thus being largely mobile-driven, the time is right for innovation to bridge the gap between digital payments and rewards.

Real money is allocated to reward programmes, so it is only right that consumers should be empowered to see the real money value of the benefits that loyalty programs promised.

Innovations on this front are now coming to light, which help consumers aggregate, quantify and use their hard-earned rewards as fungible currency. Such systems create a consolidated end-user identity for consumers across the entire retail rewards space, allowing merchants to track and recognise every payment-linked offer claimed and facilitate redemption across all connected rewards programs.

For consumers, this means rewards from buying a burger at one restaurant can be redeemed for shoes or jewellery that they intend to buy from another merchant. This makes ‘paying with rewards’ a win-win reality, finally realising actual savings for consumers, while for brands and companies it translates into a retaining precious customer loyalty.