Rewards Systems

Designing a rewards system for a financial product is both fascinating and challenging. It’s all about balancing customer satisfaction, operational efficiency, and technological feasibility. I’ve had the chance to build several rewards programs for myself and my clients, and I’ve learned a lot along the way. In this post, I’m diving into some key complexities and big decisions you’ll face.

The foundation of any rewards system comes down to how customers earn rewards and how they redeem them. 

A simplistic view of rewards earn and burn.

Earning

Cardholders can rack up rewards in a bunch of different ways: on-card spending, hitting a minimum spend to unlock signup bonuses, rotating spend categories, off-card actions, and more. Before you get to building your reward system, you need to solidify all the ways your cardholders will earn. Every decision you make here will shape how the system is built and how smoothly it runs. It can be hard to retrofit a ledger with new types, so I like to think expansively here.

Most programs start with the simplest approach—rewarding spending in specific categories. For example, a card might offer two points per dollar spent at gas stations. This is usually done using Merchant Category Codes (MCCs), which are standardized codes that classify businesses like gas stations, restaurants, and more. MCCs make earning pretty straightforward to calculate and implement. Many large issuers use MCCs exclusively for rewards. But not all categories are that simple. 

Take wineries, for example. When I was designing the rewards program for the Grand Reserve Reward Mastercard, I found out that “wineries” don’t have a dedicated MCC. Instead, they can fall into a variety of merchant categories. This meant there was a real risk of rewarding spending that didn’t align with our goals. To solve this, we tried things like curating merchant lists (which added a lot of operational work) and using regular expressions (which added some tech complexity) to pinpoint relevant transactions. 

One thing that was useful about wineries is that they are licensed, so we were able to purchase a list of all licensed wineries in the U.S. from which to start.

This experience taught me that a big part of building a rewards program is figuring out how to identify merchants accurately. Misidentifying them can mean over-rewarding or under-rewarding customers, which leads to frustration on both sides. To avoid that, we relied on transaction data, matched merchant IDs, and fine-tuned regular expressions as part of the data model. Even with all that, the process required constant iteration to handle edge cases.

One way other issuers solve for this, specifically American Express, is they list qualified merchants. For example, American Express has had the concept of major department stores for certain cards. American Express has a specific list of these merchants that they reward. 

Things get even trickier when you start adding complexity, like signup bonuses that reward customers for spending a certain amount during an intro period. That’s why it’s so important to step back and think about the whole program before diving into the build. Every decision—whether it’s earning structures, thresholds, or timing—affects your data model. Getting it right at the start makes everything easier down the road.

Once you start testing, real-world transactions will throw curveballs at you. For example, merchants sometimes misclassify themselves—a gas station might appear as a convenience store, which means customers might not get the points they expected. To handle this, we built a rewards dispute process. A simple feature in the customer portal lets users flag issues with their rewards, creating a ticket for internal review. This resolves problems and builds trust with customers, showing them we’ve got their back.

Burning

Of course, earning rewards is only half the equation. Redemption is where customers really see the value, so it needs to be seamless and engaging. Offering a variety of options, like travel redemptions, statement credits, and gift cards, makes the program appealing to a wider audience. But every option you add brings complexity. Financial redemptions, like applying points as a statement credit, can require custom API integrations to make sure everything is accurate and smooth for the user.

One of the biggest decisions on the backend is whether to build the rewards ledger in-house or use a third-party platform. Providers like Ascenda or Talon One offer solutions that can handle a lot of the heavy lifting, like managing the ledger and processing redemptions. But they aren’t always a perfect fit. For example, while they might be great for travel rewards or gift cards, handling financial redemptions like statement credits often requires additional work or custom integrations. It’s all about finding the right balance between what you outsource and what you build in-house.

Building a rewards system is ultimately about finding the sweet spot between simplicity and sophistication. Third-party platforms can save you a ton of time and effort, but they usually need to be supplemented with custom solutions to handle the unique aspects of your program. By staying flexible and planning for challenges upfront, we were able to create a system that worked for today’s needs and set us up for future growth.

My work with Grand Reserve Rewards reinforced one thing: thoughtful design and clear communication are everything—whether it’s with your team or your external partners. Designing a rewards system isn’t easy, but when you get it right, it’s an incredible tool for building engagement and loyalty.

Me, Elsewhere

This Week in Fintech published my second piece on wealthtech yesterday, The Backbone of Innovation: How Infrastructure Fuels Fintech and Wealthtech Growth, which explores how infrastructure has driven the explosive growth of fintech and how wealthtech is poised for a similar transformation. From the pioneering days of Venmo to the rise of API-driven solutions like Plaid and Alloy, the article highlights how infrastructure innovation has reduced friction and fueled growth. As wealthtech takes center stage, new opportunities are emerging for startups in compliance, data management, customer communications, market insights, and risk analysis. 

CardsFTW

CardsFTW, released weekly on Wednesdays, offers insights and analysis on new credit and debit card industry products for consumers and providers. CardsFTW is authored and published by Matthew Goldman and the team at Totavi, a boutique consulting firm specializing in fintech product management & marketing. We bring real operational experience that varies from the earliest days of a startup to high-growth phases and public company leadership. Visit www.totavi.com to learn more.

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