New credit card technology will let you pay with reward points

New technological advances may soon let consumers decide not only how they want to pay for purchases, but if they want to use accrued rewards points to do so. The New York Times reports that Citigroup's credit card division plans to roll out new, battery-operated cards next month that will let users select via a tiny button on the unit whether they want to pay with their line of credit or accumulated reward points.

It's an idea whose time has come, according to Dennis Moroney, research director of bank cards at TowerGroup, a consulting firm. Banks want to remind customers to use their rewards, both for the goodwill it generates and to get the value of all those accrued points off their books. (The same way that money held in a deposit account is a liability on your bank's balance sheet because it's technically your money, not theirs, points are also registered as a liability.)
There are plenty of other high-tech cards waiting in the wings, some of which could have significant security benefits for consumers, the article says. Some would prevent "skimming" by thieves, others would only reveal the full account number after the user enters their PIN into a machine.

High-tech credit cards are big news in the U.S., but some of these innovations, such as the chip-and-pin card, are already commonplace in Europe. The big reason the U.S. lags on the high-tech card front? Cost. In fact, the report says Citi might wind up charging customers for the newfangled cards, because they cost more to produce than ordinary magnetic-stripe cards.

Moroney believes the card would give consumers greater choices and flexibility when it comes to payments, but he says cardholders need to be cautious, too: American Express recently announced that its customers can use reward points to buy things on, but the redemption rate is less than a penny a point - even less than the current average rate. In other words, just because you can pay with points doesn't mean you'll get the best deal by doing so. Another thing to watch out for, Moroney says: As more issuers give customers a greater variety of ways to spend their points, they're going to expect them to be spent. If you hoard your points or forget about them, you could lose them to newly-imposed or tightened expiration dates.

So, be sure to read all of the details in any mail or email your credit card company sends concerning your points. If "use 'em or lose 'em" becomes the norm, you may want to spend those hard-earned points before they expire.

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