American Express (NYSE:AXP) has done a lot over the years to set itself apart from the other payment processors and credit card issuers.
Instead of going for a massive customer base, American Express has done a great job of creating exclusive "clubs" of cardholders, as with the original "Platinum Card", the Centurion (black) card, and others.
As a result of the excellent service and perks offered, the company has managed to build a fiercely loyal customer base that is more affluent and desirable than Visa or MasterCard's.
Now, it looks like American Express is trying to be the most high-tech credit card company in the market. It's partnership with Uber is the first time consumers can use reward points in-app and on-demand for transportation.
Why is this so significant and what is the potential of this type of rewards system?
American Express cardholders enrolled in the Membership Rewards program can add their card to an Uber account. Then, right in the Uber app, the customer has a choice of whether to earn double rewards points for their purchase or redeem rewards points for their ride.
Why is it so significant?
The significance is that the partnership streamlines the reward process.
There is no complex redemption procedure. Cardholders simply open the app and can choose to pay with their linked reward points.
While the partnership should definitely benefit both companies, the most significant effect of this is that it creates an even more desirable rewards program for American Express' cardholders.
This is a similar program to the New York City taxi payment option introduced late last year, in which Membership Rewards participants have the option to redeem points for cab rides at the point-of-sale. However, the Uber partnership combines the convenient redemption option with the added incentive of double points on purchases.
There is really no end to the possibilities here.
American Express could theoretically integrate its Membership Rewards program into service provider or retailer's point-of-sale system. Imagine being able to pull into your local gas station and use your points right at the pump to pay for a tank of gas. Or being able to walk into your favorite store and access your reward points right at the register.
That's what this could be leading up to.
The potential is huge
In one survey, 71% of respondents said reward programs influence their credit card usage. And, the number one characteristic desired by consumers is rewards that are easy to use and redeem.
The efforts by American Express to create the most desirable rewards program in the market seems to be paying off so far, as the company was ranked number one in customer satisfaction by JD Power for the seventh consecutive year.
If the Uber partnership is successful, American Express could easily partner with many other service providers and retailers to streamline the reward redemption. As I mentioned earlier, American Express has some of the most loyal cardholders in the business, and being able to simply open an app and earn points could easily be enough to sway purchasing decisions.
So, not only will this benefit the companies lucky enough to partner with American Express, but it helps further Amex's goal of creating the most unique and desirable rewards program in the world.