by Claire Tsosie
Credit card points are usually worth about as much as Monopoly money when it comes to making purchases. When buying things online, you typically see a credit and debit option but not one for "pay with credit card points."
That could change.
"A need exists in this industry for a program that expands product choice for loyalty program participants," says an American Express patent application recently published by the U.S. Patent and Trademark Office. The application, titled "Third Party Digital Wallet Pay With Points," notes that most loyalty programs offer only limited redemption options.
In the application, AmEx describes a system that would let its cardholders pay online with their Membership Rewards points using third-party digital wallets or merchant aggregators. If implemented, the system would make Membership Rewards one of the most flexible rewards currencies on the market. On a larger scale, it could change the way we think about the value of rewards.
What AmEx is considering
The basic idea in AmEx's patent application is to give cardholders the option of using Membership Rewards anywhere online, provided they're paying with a digital wallet or merchant aggregator that works with AmEx's system. Digital wallets, such as Apple Pay, Samsung Pay and Android Pay, are systems that let consumers make secure electronic payments online or through cellphones. Merchant aggregators, like Square or PayPal, let small businesses process credit card payments without dealing directly with credit card companies.
We don't yet know whether AmEx is actively pursuing the plan described in the patent application, which digital wallets it might work with or whether the method might someday be a popular redemption choice. NerdWallet reached out to AmEx for comment, but the company has not yet responded.
However, the patent application shows that AmEx has at least considered making its rewards more widely accepted -- and therefore more easily redeemed.
"Too often, consumers let their points just sit untouched, because they're not sure how to use them or want to make sure they're spending them on something worthwhile," says Sean McQuay, a credit cards expert at NerdWallet. "Being able to use points at checkout when you're buying stuff you actually need will fix that."
Rewards as money?
If AmEx pursued its plan, it wouldn't be the first time a credit card company has considered making its rewards more widely accepted:
- Discover filed for a patent in 2006 for a system of redeeming of credit card rewards at "point of sale," suggesting that the company was looking for a way to let customers pay with rewards at the cash register in physical stores. (We haven't yet seen Discover's system in operation.)
- Citi introduced its Rewards Account Number system in 2013, allowing ThankYou cardholders to generate temporary account numbers tied to their rewards balances and then use these numbers for online transactions.
But AmEx's approach -- one that integrates with digital wallets -- wouldn't rely on a traditional point-of-sale system, and it wouldn't require any extra effort from the customer or merchant. These differences might help it catch on, if it's put into practice.
Historically, if card issuers wanted certain merchants to accept their rewards as cash, they had to set up individual agreements with those outlets. Multiple issuers, including AmEx, let you pay with rewards on Amazon.com, for instance. Often, you can also redeem points and miles earned on co-branded and proprietary cards directly with the merchants.
AmEx's new concept is different in that it would allow people with general purpose credit cards to use their points to pay for purchases at any merchant that accepted the supported digital wallets.
What AmEx's system might look like
According to AmEx's application, the process would go like this:
- You add items to your cart while shopping online.
- You click on the option to use points during checkout.
- The seller's system asks the Membership Rewards program whether you have any points that can be applied to the total. If the answer is yes, it asks you if you want to use those points on the purchase.
- If you decide to pay with points, the transaction information goes to the Membership Rewards program. The points are deducted from your balance when the merchant finishes processing the charge.
Keep in mind that AmEx, like Discover, is both a card issuer and a payment network. That would work to the company's advantage here, since the system would require both sides to work closely together. (Issuers are the financial institutions that hold credit card accounts, such as AmEx, Chase, Capital One and Wells Fargo. Payment networks determine where you can your cards; they're indicated by the logos on your cards, such as Visa, MasterCard, American Express and Discover.)
This joint structure also gives AmEx room to change things up every now and then. For example, AmEx might run a promotional program with a "valued merchant," offering cardholders twice the usual conversion amount for a transaction, according to the application.
What we don't know
While AmEx may have figured out how the back end of a pay-with-points system might work, it remains to be seen whether such a system would be popular among cardholders.
"It'll be a challenge to get this capability into the hands of consumers and even more difficult to teach them how to use it and be comfortable with it," McQuay says.
The popularity of the system, if it's carried out, would also depend on the redemption values it offered consumers. The application doesn't disclose any specific conversion rates, aside from noting that the rates might vary by merchant. But NerdWallet valuations show that the value of one Membership Rewards point already can vary widely based on how it's redeemed:
- Travel booked through AmEx: 1 cent
- Gift cards: 1 cent
- Charity: 1 cent
- Uber: 1 cent
- Merchandise: 0.5 cent
- Amazon.com: 0.7 cent
- Airbnb: 0.7 cent
- Everyday charges (statement credit): 0.6 cent
If AmEx's pay-with-points system could get you 1 cent per point, it would offer excellent value. Less than that and you'd be better off redeeming your points for gift cards, currently the most flexible and valuable redemption option available through AmEx.
For now, cash back is still king
If AmEx implements a system for paying with points in more places, it could make its rewards program much more valuable. As it stands, the Membership Rewards program is better suited to frequent travelers than people who take only one or two trips per year. Many other rewards credit cards offer similarly limited redemption options.
That's not to say redemption flexibility is out of reach, though. If you're looking for versatility, switching to a cash-back credit card, instead of a card that doles out points and miles, might be your best bet for the time being. You probably would have to redeem rewards the old-fashioned way -- that is, by logging onto your account and requesting a check or statement credit. But you'd have the freedom to apply the rewards to any charges you wanted, without worrying about conversion rates that may change. For many, that added flexibility is worth the effort.
This story originally appeared on NerdWallet.