Australia’s consumer watchdog has put customer loyalty schemes, including frequent flyer programs, on notice with a startling new report.
In a draft report released yesterday, the ACCC highlighted several concerns around customer loyalty schemes, including the poor disclosure by operators about how consumer data is used and shared.
Both the ACCC and ACL regulators across Australia received some 2,000 reports of consumers experiencing a variety of issues participating in loyalty schemes in the five years to December 2018.
Additionally, the report highlighted the potential for frequent flyer schemes to “result in significant customer lock-in effects”, which has occurred overseas, as the commission noted.
The report notes that Qantas Frequent Flyer – Australia’s largest loyalty program, which in 2018 had more than 12 million members – might have a significant impact on barriers to entry and expansion for the domestic business traveller segment.
However, it adds it is still unclear whether customer lock-in effects and switching costs associated with frequent flyer schemes have resulted in major barriers to entry, citing Virgin Australia’s success in growing its Velocity loyalty scheme – the third largest loyalty program in the country with more than nine million members – and market position as privy.
The ACCC has also received reports from consumers that they haven’t earned, kept or been able to redeem their points in the way they expected, with some loyalty scheme operators noted for imposing high ‘carrier charges’ when points were redeemed for flights.
“Many people think they can redeem their points for a free flight, but in some cases, the cost of purchasing an airfare without using points may be similar to the cost of a flight using points once the airline adds on taxes and charges.” Sims said.
Furthermore, the ACCC chair said consumers may be shocked to find that some loyalty schemes collected their data when they don’t scan their loyalty cards, or that they combine it with data from other sources that they might not even be aware of.
“The privacy policies of these schemes are frequently very vague and don’t tell consumers who their data is being shared with or how it is being used, shared or monetised,” Sims said.
“The data that loyalty schemes collect can be used to profile consumers and produce insights about their purchasing behaviour. These insights about consumers may then be shared with or sold to third parties.”
Moreover, the government agency highlighted concerns whether consumers received benefits advertised by loyalty providers, unilateral changes by loyalty schemes to their terms and conditions, and poor communication about how their schemes work.
Almost nine in 10 Australian adults are members of a loyalty scheme, according to the ACCC, with the average Aussie carrying between four to six loyalty cards, while some of the most popular Australian loyalty schemes report having more than 10 million members.
The ACCC noted loyalty schemes can contribute to a significant proportion of a company’s profits, with some schemes generating $110 million to $370 million in earnings each year.
Having put loyalty operators on notice, the consumer watchdog is now calling on consumers to contact the government agency to report concerns.
The ACCC is seeking comments on the draft report by 3 October 2019, and expects to release a final report in late 2019.
“The ACCC will consider these concerns in deciding whether enforcement action will be required to effect broader change,” Sims said.