The Hidden Cost of Breakage: What Finance Needs to Know About Rewards

Published by Trisha Asgeirsson – President, SKUx 

The breakage model is failing 

The numbers are stark: 23% of all rewards cardholders left rewards unused in the past year. More than 1 in 10 Gen Z cardholders never redeem their points at all- the highest of any generation. 

Your CFO may love this. That 20-30% of points that never get redeemed? That’s pure profit sitting on your balance sheet. 

The problem: You’re trading short-term margin for long-term loyalty 

Traditional points programs rely on people not redeeming rewards. It’s baked into the financial model. Companies book lower redemption expenses because they know a significant portion will go unused. 

But here’s what that “profit” actually costs you: 

Your marketing spend languishes unused points instead of influencing behavior. You’re paying for waste, not results. 

Customers who rarely redeem have lower lifetime value. Loyalty members who redeem rewards at least once monthly show substantially higher spend and engagement. 

You’re losing ground to competitors offering instant value. 

The solution: Switch to instant cash rewards 

Cashback cards now represent 58% of US cardholder usage versus 31% for points-based cards. That gap is widening under economic pressure. Brands offering instant value are capturing market share from those still offering “slow” rewards. 

When you shift to instant cash rewards, the economics change immediately: 

Redemption rates spike – possibly to 80-90% versus 50-70% for points. In our recent campaigns, we saw 68% redemption rates for instant virtual cards versus roughly 3% for typical digital coupons. 

Yes, the breakage “profit” disappears. If you’ve been counting on 20% unredeemed points to pad margins, that cushion is gone. 

But here’s what you gain: 

Higher redemption = better ROI. Your marketing spend actually influences behavior. You’re paying for results. 

Basket sizes increase. One study found loyalty members who received instant discounts showed higher basket sizes than those accumulating points – the reward immediately reduced the mental “cost” of additional items. 

Customer lifetime value improves. By making redemption easier and more frequent, you drive repeat purchase rates. 

Trade your short-term 20% breakage profit for long-term loyalty and higher profits. The market is moving. Move with it. 

Sources: Bankrate | Coinlaw | Bankingjournal