Key finding: Framing savings as the default redemption option and reducing the number of clicks required to redeem to savings doubled the number of cash back rewards cardholders who made a redemption to savings.

Background

Rewards are one of the highest-ranked perks of using credit cards (they rank a close third place after having a safety net and not carrying cash), according to a 2018 survey of 1,000 people with varying credit scores and cards. No wonder why: The average annual payout in rewards is $167 per account. Meanwhile, we also know that far too many people (36% of Americans) are struggling to have even $400 in liquid savings for an emergency. While not all low savers are also in a position to be generating credit card rewards, there is still some overlap between populations. For those individuals, we wanted to explore whether there was a way to close the gap and convert credit cards rewards into savings.

The opportunity seems simple—convince people to save their credit card rewards for when an unexpected expense comes up. However, research on “mental accounting” shows that people categorize and spend money differently depending on where it came from, and where it’s going. More specifically, people tend to match the seriousness of the source of a windfall with the use to which it is put. This poses challenges for getting people to save their credit card rewards, as rewards are often viewed as “found money” and consequently are spent on more frivolous, rather than serious purchases.

To explore ways to overcome these challenges, the Common Cents Lab partnered with Mastercard® and Virginia Credit Union (VACU) based in Richmond, VA, to run an experiment within the redemption portal of their Cash Rewards Mastercard®.

Hypothesis and Key Insights

We hypothesized that by making it both easier and more salient for consumers to redeem credit card rewards as savings, it could help people reframe the mental account with which they typically associate rewards. This, in turn, would make them more likely to use their rewards to build up savings, rather than spend them.

To try to increase the amount of cash back rewards cardholders redeemed into their savings account, we leveraged a few different behavioral science principles:

• Leverage defaults: Humans have a strong tendency to go with the default or pre-set option, since it is easy to do so. Making an option the default makes it more likely to be adopted.
• Provide an anchor: People tend to rely heavily on the first piece of information they are given about a topic.
• Decrease friction costs: The small, seemingly irrelevant details that make tasks more challenging and effortful can impact whether or not people perform a behavior.

Experiment

We redesigned the savings portal, leveraging the principles above to:

1. Make saving the default: We created an additional radio button for “Deposit to VACU savings,” which is pre-selected when a user lands on this page. This aims to both increase the saliency of this redemption option, as well as decrease the number of clicks needed to redeem.
2. Anchor on full amount: When “Deposit to VACU savings” is selected, the full amount of available rewards is auto-populated into the redemption amount. When another redemption option is selected, no amount is auto-populated, requiring users to make an active choice regarding how much they want to redeem. Research suggests that requiring an active choice slows the decision process and ultimately helps people make decisions that are more aligned with their true preferences.
3. Leverage friction costs: We pulled this lever both ways, decreasing the friction to redeem to savings and increasing the friction to redeem through other methods. Because savings is the default selection option and the redemption amount is pre-populated, users could hit “Submit” and redeem their full rewards balance to savings in a single click. On the other hand, redeeming to a checking account or as a statement credit required selecting a different radio button, as well as entering a redemption amount before the “Submit” button became active.

Individuals in a control group continued to see the portal as it was before the redesign, while individuals in the experimental study group saw the redesigned portal. We hypothesized that in the experimental study group:

1. More VACU Cash Rewards Mastercard® cardholders would redeem their earned cash rewards into their VACU savings account.
2. VACU Cash Rewards Mastercard® cardholders would redeem a higher proportion of their earned cash rewards into their VACU savings account.

Results

This experiment was launched on October 19, 2020 and ran through March 3, 2021. While the experiment was in the field, 4,176 unique members visited the portal, and were evenly randomized between the two conditions. The experiment more than doubled the percentage of cardholders who made at least one redemption to savings during the experiment (p < 2.2e-16).

We were curious whether this experiment increased not just the number of members who redeemed to savings, but the amount members redeemed to savings. In other words, did members in the experimental group actually save more dollars than members in the control group?

We added up the rewards balance members had at the start of the experiment and the rewards they earned during the few months the experiment was in the field—this was their total rewards available for redemption. We then looked at what proportion of those rewards they redeemed to savings during the experiment. The experiment nearly doubled the proportion of cardholders’ available rewards they redeemed into their savings account.* (p = 4.527e-15).

As a result of this experiment, the treatment group redeemed a total of $35,677 more into savings during the experiment.

These experiment results demonstrate the impact that small changes to the decision-making environment can have on an individual’s decision to save. Redesigning the redemption portal to (1) frame redemptions to savings as the most common choice and to (2) require slightly fewer clicks resulted in more members redeeming to savings who would have likely redeemed into their checking accounts otherwise.

*This question was answered for the 11/1 – 2/28 period, because that was the period of the experiment for which we had both statements and redemptions. This calculation includes those who did not make any redemptions to savings. Members were excluded if they had no available rewards to redeem throughout the duration of the experiment (i.e., they are not using their card).

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million philanthropic commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis.