Personal Finance

Refer-a-friend programs catch on for credit cards, prepaid cards

It pays to have friends.

And these days, the more friends you have, the more cash you can receive or miles and points you can score from your favorite credit card company, retailer or travel rewards club.

While refer-a-friend programs have existed for decades in various industries, financial services companies have been slow on the uptake, says Jim Sullivan, a partner with Colloquy, which focuses on the loyalty marketing industry.

Such programs "have not been used routinely by banks for customer acquisition," Sullivan says. "I wouldn't be surprised if they take a second look as they try new ways to line people up."

One of the newest financial companies to take that tack is Discover, which in the summer of 2011 launched a refer-a-friend program, while also tapping into the power and popularity of social media. Through the program, if you're a Discover cardholder, you can refer your friends to the credit card company using email, Facebook or Twitter, says Discover spokeswoman Laura Gingiss.

If your friend applies for a Discover card and is approved, you'll receive either a $50 cash-back bonus or 5,000 airline miles, and your friend will get $50 cash back if she makes a purchase during the first three months she has the card. The rewards are good for a staggering 100 friends a year, giving you the potential to earn big bucks through the program.

Gingiss says you can keep track of your referrals online and see which of your friends or family members sign up for a new Discover card.

The company is not alone. Retailers such as REI and Gymboree offer cash or gift card bonuses if you refer a friend for a store-brand Visa card, and your friend is approved

If you have a U.S. Bank FlexPerks Visa credit card, you can snap up bonus miles for referring a friend, while several prepaid credit cards offer you cash if you refer a friend and he signs up for a card.

Travelers have friends, too On the travel front, companies such as Marriott offer bonus points if you refer a friend and they stay at a Marriott hotel.

One of the longstanding proponents of such programs is Amtrak, which started offering a referral program in the mid-2000s, says Mike Blakey, senior director of loyalty marketing and customer relationship management for Amtrak.

To compete with the airlines, the railroad has a Guest Rewards program, under which travelers can chalk up points and earn free Amtrak travel, hotel stays, car rentals and similar perks. Referring a friend to Guest Rewards and having them join up will earn you 500 bonus points if your friend travels via Amtrak within 90 days of joining the program.

The hope is that Amtrak riders will share the program with "like-minded friends and business associates who can benefit," Blakey says, while at the same time rewarding Amtrak's passengers for their efforts.

Blakey says Amtrak has seen about a 20 percent increase in Guest Rewards memberships each year, while at the same time ridership has increased almost every year since 2000.

By offering such a program, along with the opportunities to earn extra points through referrals to friends, "you're trying to give the customer that added value," which might prompt them to take the train rather than fly, Blakey says.

Discover has had a similar experience, because "card members are always excited to have additional ways to earn rewards," Gingiss says.

Deals spread socially Sullivan says that companies' refer-a-friend programs also benefit from the social networks of their best customers, who are likely to boast of their deals and inspire their friends to get them, racking up more rewards along the way.

NetSpend, which offers prepaid Visa and MasterCard debit cards, has seen this firsthand. The company began actively marketing its refer-a-friend program in 2009 after its research found "our customers were referring our product to their friends, family and co-workers. Ultimately that led us to invest in this strategy," says Chuck Harris, NetSpend's president. For the company, having a refer-a-friend program boosts its marketing efforts by turning customers into its sales force.

Current customers, as well as their friends, can each earn up to a $20 credit if the friend buys a card and loads at least $40 onto it.

One of the potential downsides to credit card referral programs, Sullivan says, is that companies "need to establish creditworthiness before you make an offer."

And consumers need to remember that applying for a credit card can have an impact their credit score.

On the other hand, those who purchase prepaid credit cards don't have to worry about creditworthiness. Unlike a traditional credit card, a prepaid card is available to anyone, regardless of credit score.

As traditional marketing channels become less popular, and consumers spend more time online interacting with family and friends, Sullivan expects referral programs to become increasingly popular.

For their part, companies want to be looked at "like a friend," he says, "and they're really trying to get into the networks of their customers and serve them well."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Credit Cards

Latest Personal Finance Videos