Citibank’s Credit Card ‘Makeover’: Why I’m Already Not a Fan of 2G Plastic

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A new generation of credit cards is being outfitted with all sorts of bells and whistles. Actually, with technology way more sophisticated (complicated?) than mere bells and whistles: lights, a slim battery that lasts four years, an embedded computer chip, and buttons that allow you to make purchases using regular old credit, or with rewards (cash rewards, typically) you’ve compiled from previous purchases on the card.

The point-of-purchase option from Citi’s 2G cards, which will be available to select customers in November and spread further in 2011, is a neat trick. Rather than having to use reward points the old-fashioned way—swapping them online for merchandise or flights, or requesting that a check be mailed to you—the new system enables customers to trade in points for purchases made on the spot in stores. In other words, you swipe your card, press a “Request Rewards” button on the card, and (fingers crossed) payment is made from your pile of reward points. Your points may be depleted, but you don’t get a bill for the purchase, and hey, who wouldn’t want to get something for free?

If I didn’t explain that well, enough, here’s how the NY Times describes the process, part of a broader “makeover” for the “mundane credit card”:

To pay with points, users press the request-rewards button before swiping the card; the button marked regular credit allows a straight credit transaction.

Pressing the buttons changes the data imprinted on the magnetic stripe, so it still works like conventional plastic and can be swiped through existing card terminals nationwide. At least for now, cardholders need to know how many points they have, and if they don’t have enough, the transaction will be processed using credit.

So why don’t I love this new system?

Well, first, there’s the complication-confusion factor. I know plenty of consumers who are just mastering—and who sometimes still screw up—the “credit or debit” question at the point of purchase. Here’s another question that they’ll have to address, and that they’ll potentially be mystified by. Something tells me that store clerks may also be less than on-the-ball when it comes to the processing of 2G (second-generation) credit cards.

More importantly, let’s think about what’s really happening here. The big selling point seems to be the impression that these cards let you get stuff at no charge, and with no wait. The truth is that nothing is being given away free (you’re using reward points, same as the old system), and that reward points aren’t compiled instantly (they’re not added to your account until you’ve paid your bills, same as the old system). So at most, you’re getting to use your rewards a few days earlier with the new 2G cards.

Human nature being what it is, these cards would also seem to be bigger enablers than the standard credit cards of yore (and that’s saying a lot). The pressing of buttons and the allure of instant freebies makes shopping seem even more like a game—one that certain consumers will play both impulsively and compulsively. After all, when you think you’re getting something for free, why not scoop it up immediately?

The problem here is that when shopping is easy and fun, shoppers spend more, early and often, and on stuff they don’t need. If your goal is to rein in spending and get debt under control, it’s been proven that shopping should be more painful and tangible than the quick, thoughtless act of swiping a piece of plastic—and now, hitting a video-game-like button.

I’m also wondering just how much it costs simply to produce these 2G cards, and also if consumers will get them without having to incur annual fees or other charges above and beyond the usual. Citi declined to offer any specifics about their outlay for high-tech cards, or whether cardholders will have to subsidize them via increased fees.

What Citi is undeniably saying is that they’re offering a reward program that’s plain better than their old one. But is it? It’s certainly not a more generous program.

The cards being embedded with computer chips now offer 1% cash back on most purchases, and 2% back periodically on certain purchases. Just a few months ago, these same cards gave a more generous 2% cash back year-round for staple purchases, including groceries and gas. The decrease in rewards is a trend long in the works: Not long ago, these same cards gave 5%, then 3% back for purchases at supermarkets, drugstores, and gas stations.

Which would you prefer: instant rewards (that aren’t really instant), or double the rewards (that require you to wait a few days)? Personally, I’d prefer double cash back, even if I had to wait a few days for it. But maybe that’s just me and my kooky, delayed-gratification financial sensibility.

The more I think about it, I agree with BusinessWeek’s assertion that the credit card belongs on the list of “20 Dying Technologies.” Think about it: The credit card is nothing but a middle man that was most attractive for the sake of convenience. But, even with these new innovations, more and more it seems like credit cards simply function like most middle men do: They get in the way between buyer and seller, take a slice of the action, and make life more expensive for everybody involved via “swipe fees.” Surely, there could and should be widely available alternatives that are less costly and just as convenient.