Banks often offer reward points on transactions carried out through their debit/credit cards. These points can be used at a future date by the customer in order to avail discounts and other offers. As a result, the bank bears a liability of these points getting redeemed by the customer in the future.

We prepare bespoke models for our clients, tailoring each model to the nuances of the rewards scheme. We also suggest the appropriate assumptions to be used in the model by analyzing the past trends of the portfolio. The liability is valued by estimating the redemption pattern in the future and applying actuarial principles to determine the monetary liability as on the valuation date.

While such schemes are primarily associated with debit/credit cards, the principles, models and valuation techniques can be applied for any rewards scheme which gives the consumer the right to redeem accrued points at a later date.