Business

Discover cashback reward program change to cost $178 million

Posted November 19, 2014 12:01 am

Bloomberg News

Riverwoods-based Discover Financial Services will take a $178 million charge in the fourth quarter to make changes to its cashback rewards program.

Discover is removing thresholds for allowing customers to redeem points and no longer stripping clients of rewards if they're delinquent in paying or their account is closed or inactive, the Riverwoods, Illinois-based company said today in a regulatory filing.

Discover, the fourth-biggest U.S. payments network, said last month it was considering these changes in order to make it easier for consumers to redeem points for cash. Chief Executive Officer David Nelms said at the time the changes could result in a charge of as much as $185 million.

The 2014 rewards rate, or the cost of rewards divided by sales volume, will be about 1.17 percent after the changes, the bank said. Discover's rewards cost rose 11 percent to $304 million in the third quarter from a year earlier, while the rewards rate increased to 1.03 percent from 0.98 percent, the company said last month.

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