WO2003098495A1

WO2003098495A1 - Mortgage reward programme

Info

Publication number: WO2003098495A1
Application number: PCT/AU2003/000602
Authority: WO
Inventors: Massimo La Grutta
Original assignee: Prudential Finance Corporation Pty Limited
Priority date: 2002-05-20
Filing date: 2003-05-20
Publication date: 2003-11-27
Also published as: AUPS243302A0

Abstract

A mortgage facility (110) can be linked to a credit card (120) to meet the banking requirements of individual customers. A reward programme (130) is advantageously associated with a credit card (120), such that reward points accumulated in accordance with the reward programme (130) can be redeemed against the mortgage facility (110). That is, payments made using the credit card (120) effectively receive a reduction in the amount owing in the mortgage facility (110).

Description

MORTGAGE REWARD PROGRAMME

Field of the Invention

The invention relates broadly to financial products, and relates more particularly to mortgage products offered by financial institutions.

Background

The worldwide trend to deregulation of financial markets, including consumer financial services, has spurred competition between financial services providers. Financial providers have in many countries entered the financial services sector with innovative and appealing financial products, encroaching upon the traditional markets of large incumbent banking institutions. Competition has thus increased, thus reducing margins and prompting a more efficient financial services market.

This general trend is likely to continue in the current global economic climate. Accordingly, there is expected to be an ever-increasing variety and sophistication of financial products available to customers of financial institutions. Many such products have been devised, some-examples of which are described in outline below.

Canadian Patent Application No 2 338 387, made by Unipac Service Corporation, and published 7 January 2002, describes a system in which student educational loans are offered to students. Students having such loans are directed to a restricted network of selected merchants (booksellers, etc) that retail goods likely to be interest to the students. "Loyalty points" are awarded to the student for purchases made by the students within this restricted network of merchants. Merchants make a rebate-like contribution of up to 5% of the purchase price for the purpose of funding the "loyalty points". Accumulated loyalty points can be redeemed by students as a credit against their student loans, or as a credit against further purchases within the restricted merchant network.

Canadian Patent Application No 2 237 109, made by PNC National Bank, and published 7 November 1998, describes a shopping mall loyalty reward programme. Reward points are attributed to customers of a restricted set of merchants in a shopping mall. The customer is notified via their credit card statement. For consumers not using a credit card, a separate mall loyalty card can instead be used. Accumulated points, based upon the level of mall spending, can be redeemed through a loyalty partner.

International Patent Application No PCT/US01/12219, made by American Express Travel Related Services Company, hie, and published 25 October 2001 as WO 01/79966, relates to a loyalty reward programme used to accumulate loyalty points from electronic transactions. Accumulated loyalty points are converted to a "currency credit" that can be used to credit a transaction account, or a stored value account or online wallet.

hi view of the above observations, there exists a demand for financial products that appeal to a broad market of consumers, and attempt to retain the loyalty of consumers.

Summary

A mortgage for a residential property is offered with a credit card having an associated rewards programme. The rewards programme awards points to a reward account based upon the purchases made using the credit card. The accumulated points are redeemed, as required, to a credit in respect of the residential mortgage.

The customer is provided with a widely accepted transactional payment facility, the use of which offsets the cost of the customer's secured debt facility. This link between the customer's long-standing mortgage and transactional credit card provides a compelling incentive for the customer to retain the mortgage, and the credit card, with the existing provider. Liberal use of the credit card for day-to-day purchases is encouraged as the use of reward points is directly linked to a reduction in the residential mortgage.

From a financial provider's perspective, residential mortgages and credit cards are conventionally both lucrative products. A residential mortgage is usually a debt of significant value and is, accordingly, underwritten by an asset used as security. As the debt is of considerable proportions and typically lasts 20 years or more, the interest repayments and other fees are also significant. Credit cards, by contrast, are a convenient form of household credit that is typically used for household expenses with minimum monthly repayments. Relatively high interest rates and various other charges are charged to the customer who in return has access to a pre-approved line of credit for day-to-day transactions.

A competitive advantage in either the residential mortgage or credit card markets is beneficial, owing to the revenue streams earned by providers from mortgage and credit card accounts. The prospect of at once securing both the residential mortgage and the credit card business of customers is thus appealing to financial providers. The product described herein encourages customers to retain the residential mortgage with the provider, and to continue using the credit card to accumulate further redeemable points. Customer "churn" is thus discouraged to the benefit of the financial provider. In short, the marketing appeal of the product can provide a basis for expanding mortgage market share, and also increasing the number of and return from credit card holders, while reducing the "churn" rate for both.

As for customers, all points earned through the reward programme can be simply and conveniently redeemed in a form of direct benefit to the customer, that is, in the form of a direct cash credit to their mortgage balance. Consolidating transactional purchases through the credit card is encouraged in order to accumulate further points redeemable against the mortgage loan. The life and cost of the mortgage is thereby reduced.

The intuitive appeal of the product is especially strong for households that make a high volume of monthly purchases via a credit card, and which have a highly geared residential mortgage. This appeal relates to the notion that the more one spends using the credit card, the more favourable is one's position in relation to the residential mortgage.

An account of reward points is maintained to allow customers to review and redeem their accumulated points when required. The option of redeeming points as a credit against a mortgage debt does not preclude other redemption options that may be offered to customers. Description of Drawings

Fig. 1 is a schematic representation of the mortgage reward programme described herein.

Fig. 2 is a flowchart of steps involved in operation of mortgage reward programme described herein.

Fig. 3 is a schematic representation of computer system advantageously used for administering the mortgage reward programme described herein.

Detailed Description

A mortgage is broadly defined as a loan made in respect of an asset that the creditor holds as security for the loaned debt. The asset is returned to the debtor upon full payment of the debt. Mortgages are used for the purchase of property assets, and in retail banking are most commonly made in respect of residential property.

Individuals who enter loan or mortgage arrangements as debtors also often require a transactional payment facility for general day-to-day banking use. A payment facility such as a credit card is perhaps the most widely used of such payment facilities.

Accordingly, a residential mortgage and a credit card, directly linked via a rewards programme as described herein, advantageously meets the banking needs of the customer while for the provider enhances the loyalty of the customer's residential mortgage and credit card business.

Fig. 1 schematically represents the mortgage reward programme described herein. A secured debt facility, in the form of a mortgage facility 110 for a residential property is associated with a transactional credit facility in the form of a credit card 120. The credit card 120 operates in conjunction with an associated reward programme 130. Purchases made using the credit card 120 accumulate points in accordance with the reward programme 130. Such points can be redeemed against the mortgage facility 110. The mortgage reward programme described herein thus links a mortgage facility 110 and a credit card payment facility 120 in the advantageous manner described herein. Points accumulated through use of the credit card 120 can be redeemed as a converted cash credit against the mortgage facility 110.

The reward programme 130 is one in which an account of reward points is maintained. Points are accumulated in accordance with the reward program 130. The reward programme 130 may specify the award of points in any manner that the provider sees fit. As a general proposition, the structure of the reward programme 130 is such that points are accumulated in a manner that is readily understood and appealing to customers. A common structure for the reward programme 130 may be that points are awarded at a rate that reflects the dollar value of purchases made using the credit card 120. For example, 100 award points may be allocated against a reward programme account for every dollar of purchases made using the credit card 120. This basic structure does not, of course, preclude the award of further points in particular circumstances.

The reward programme 130 can have a range of rules, or special offers, governing the award of points. As a simple example, "bonus" points may be allocated against the reward programme account for purchases made at any one of a select network of retail providers. Allocation of such bonus points is intended to build loyalty towards members of this select network of retailers. "Extra" points may also be allocated for promotional purposes, such as the purchase of select products within a certain promotional time frame. Additional points may be awarded for purchases above a certain amount in a given store, hi any case, points can be accumulated under the reward programme 130 in any specified manner.

Fig. 2 flowcharts, in overview, steps involved in operation of the financial product described herein. In step 210, purchases are made using the credit card 120. In step 220, points are allocated in respect of the purchases made in step 210, in accordance with the reward programme 130. In step 230, the points accumulated in step 220 are redeemed against the mortgage facility 110.

Table 1 below outlines the characteristics of the mortgage facility 110 (in this case a secured variable loan for a residential home) that may be offered to purchasers. The "reward programme" characteristic outlined in Table 1 indicates that reward points accumulated under a reward programme are redeemable as "dollars off (that is, a credit) in respect of the mortgage facility.

TABLE 1

REWARD VARIABLE RATE: 6.25% (target rate) FIXED RATE OPTION: 2, 3 & 5 years INTEREST ONLY OPTION: 2, 3 & 5 years LOC FACILITY: Pre approved $20000 T A P

Maximum $500,000 < 80% LVR

TERM: Up to 30 years

PURPOSE: Owner-occupied and/or investment

LOAN SIZE: $50,000 to $3,000,000

SECURITY: First Registered Residential Mortgage

LMI: Applies Over 80%

LVR: $50,000 to $400,000 > 95%

$400,001 to $750,000 > 90%

$750,001 to $1,000,000 > 85%

$1,000,001 to $3,000,000 > 75%

APPLICATION FEE: Waived VALUATION FEE: $200 per valuation. P O A. for property over

$1,000,000

ONGOING FEE: Nil FEATURES: Spilt Loan - up to 4 accounts, Redraw, Internet and Phone Banking, ATM access via debit card and Cheque book optional

REWARD PROGRAMME: Reward points accrued under Reward

Programme can be redeemed as dollars off the home loan.

PRINCIPAL REDUCTIONS: Can be made at any time on variable rate. Up to

$20,000 per annum on fixed rate.

REPAYMENT METHOD: Direct Debit, Monthly, Fortnightly or Weekly, Direct Salary Credit, (Principal and Interest or

Interest-Only Repayments).

EARLY DISCHARGE FEE: NIL. DEFERRED ADMIN FEE: 0.8% of initial principal is charged if balance repaid in full in the first 4 years, thereafter fee is waived.

Table 2 below outlines characteristics of a credit card 120 that can be used in conjunction with the mortgage facility 110 described above with reference to Table 1.

TABLE 2

CARD NUMBER: 1111 2222 3333 4444

VALID FROM: 05/01

VALID TO: 04/03

CARDHOLDER: JOHN SMITH

POINTS CONVERSION: $1.00 = 1 Point

CURRENT BALANCE (DOLLARS): $1,150.00

CREDIT LIMIT: $10,000.00

ANNUAL MEMBERSHIP FEE: $50.00

ANNUAL PERCENTAGE RATE: 12.75% pa

GRACE PERIOD: 25 Days

INTEREST FREE PERIOD: 55 Days

STATEMENTS: Monthly CASH ADVANCE: Yes: ATM, Approved Merchants &

Member Institutions

(Fee = 3% of cash advance or $5.00 min)

REWARDS PROGRAMME: 1 Point allocated for every A$1.00 spent

BALANCE TRANSFER: Yes

METHOD OF CALCULATING: Average daily balance (including new purchases) finance charges on purchases

Table 3 below presents characteristics of a reward programme 130 that can be used in conjunction with the mortgage facility 110 and credit card 120 described above with reference to Tables 1 and 2.

TABLE 3

NAME OF MEMBER: John Smith

MEMBERSHIP NUMBER: 1111 22223333 4444

Card members enrolled in the rewards programme accrue one point for every A$l charged and billed on the member's card.

ANNUAL FEE: $49.00

POINTS ACCRUED STATEMENT: Monthly

BENEFITS:

Transfer Reward Points to the Frequent Flyer Program of your choice,

Redeem points for Accommodation, Car Rental & Package Holidays,

Redeem points for retail purchases of goods and services, Redeem points as cash/credit of your Mortgage Loan

Table 4 below presents an example of points accrued in accordance with a reward programme 130, and redeemed as "dollars off a mortgage loan 110.

TABLE 4

OPENING BALANCE POINTS: 1,000 POINTS OPENING BALANCE DOLLARS: $10.00 BONUS POINTS ADDED: 500 POINTS BONUS DOLLARS ADDED: $5.00 USAGE POINTS ADDED: 3,600 POINTS USAGE DOLLARS ADDED: $36.00 POINTS TRANSFERRED OUT: 4,000 POINTS towards $100,000 Mortgage Loan

DOLLARS TRANSFERRED OUT: $40.00 ► $ 40.00 CLOSING BALANCE POINTS: 1,100 POINTS $ 99,960.00

New Balance CLOSING BALANCE DOLLARS: $11.00

The credit card reward programme provider can, upon authorization from the customer, debit the customer's reward points account by a specified amount and deposit an agreed cash amount in the mortgage facility maintained by the mortgage provider. This specified amount may appear as a credit in either the mortgage account that forms part of the mortgage facility 110. The mortgage facility 110 and credit card 120 may, of course, be provided by the same financial institution.

Computer hardware and software

The mortgage reward programme described herein can be provided with the assistance of computer hardware and software operated by a financial institution, as is understood by those skilled in the art. An account is kept of monies owing in the mortgage facility 110, and payments made via the credit card 120. Separate accounts are also maintained of reward points accumulated under the reward programme 130.

A purchaser can manually or automatically have accumulated reward points redeemed as a "cash" credit in the mortgage facility 110. All such transactions are appropriately recorded, as is usual with transactions made with financial institutions. Described below is an example computer system suitable for executing software that can assist in operating or administering the financial product described herein.

Fig. 3 is a schematic representation of a computer system 300 that is provided for executing computer software programmed to assist in performing techniques used to provide the financial product described herein. This computer software executes on the computer system 300 under a suitable operating system installed on the computer system 300.

The computer software is based upon computer program comprising a set of programmed instructions that are able to be interpreted by the computer system 300 for instructing the computer system 300 to perform predetermined functions specified by those instructions. The computer program can be an expression recorded in any suitable programming language comprising a set of instructions intended to cause a suitable computer system to perform particular functions, either directly or after conversion to another programming language.

The computer software is programmed using statements in an appropriate computer programming language. The computer program is processed, using a compiler, into computer software that has a binary format suitable for execution by the operating system. The computer software is programmed in a manner that involves various software components, or code means, that perform particular steps in accordance with the techniques described herein.

The components of the computer system 300 include: a computer 320, input devices 310, 315 and video display 390. The computer 320 includes: processor 340, memory module 350, input/output (I/O) interfaces 360, 365, video interface 345, and storage device 355. The computer system 300 can be connected to one or more other similar computers, using a input/output (I/O) interface 365, via a communication channel 385 to a network 380, represented as the Internet.

The processor 340 is a central processing unit (CPU) that executes the operating system and the computer software executing under the operating system. The memory module 350 includes random access memory (RAM) and read-only memory (ROM), and is used under direction of the processor 340.

The video interface 345 is connected to video display 390 and provides video signals for display on the video display 390. User input to operate the computer 320 is provided from input devices 310, 315 consisting of keyboard 310 and mouse 315. The storage device 355 can include a disk drive or any other suitable non- volatile storage medium.

Each of the components of the computer 320 is connected to a bus 330 that includes data, address, and control buses, to allow these components to communicate with each other via the bus 330.

The computer software can be provided as a computer program product recorded on a portable storage medium. In this case, the computer software is accessed by the computer system 300 from the storage device 355. Alternatively, the computer software can be accessed directly from the network 380 by the computer 320. In either case, a user can interact with the computer system 300 using the keyboard 310 and mouse 315 to operate the computer software executing on the computer 320.

The computer system 300 is described only as an example for illustrative purposes. Other configurations or types of computer systems can be equally well used to implement the described techniques. Conclusion

A mortgage reward programme is described herein as a property mortgage 110, which is linked with a credit card 120 having an associated reward programme 130. Other configurations are also possible. For example, a charge card may instead be used as a transactional credit facility.

Commercial considerations apply to the form of business model adopted, and various alternative models are possible. A single entity (such as a full-service bank) may offer to customers both the mortgage facility 110, and the credit card facility 120 with the associated reward programme 130.

Alternatively, separate entities may collaborate in respectively offering the mortgage product 110 on the one hand, and the credit card 120 and reward programme 130 on the other hand. Other arrangements are of course possible. The associated reward programme 130 and its administration may be outsourced by the credit card provider, as an example.

The product, when offered under licence, may require one or more of the involved entities to direct royalties or other payments of appropriate value to a licensor. The licensor may, of course, be one of the collaborating entities involved in offering the product to customers.

Various other alterations and modifications can be made to the techniques and arrangements described herein, as would be apparent to one skilled in the relevant art.

Claims

Claims:

1. A method of admimstering a financial product, the method comprising the steps of:

providing to a customer (i) a secured debt facility and (ii) a transactional credit facility having an associated reward programme;

maintaining an account of reward points accumulated by the purchaser in accordance with the reward programme associated with the transactional credit facility (ii); and

allocating, on behalf of the purchaser, the accumulated reward points as a credit against the secured debt facility (i).

2. The method as claimed in claim 1, wherein the accumulated reward points are automatically allocated against or redeemed against the secured debt facility at periodic intervals.

3. The method as claimed in claim 1, wherein a predetermined proportion of accumulated reward points are automatically redeemed against the secured debt facility at periodic intervals.

4. The method as claimed in claim 1, wherein the secured debt facility is a mortgage for a residential property.

5. The method as claimed in claim 1, wherein the transactional credit facility is a credit card or charge card.

6. The method as claimed in claim 1, wherein the reward programme accumulates points in respect of purchases made using the transactional credit facility, in proportion to the monetary value of purchases made using the credit facility.

7. A method of administering a financial product, the method comprising the steps of:

maintaining an account of monies owing in respect of a secured debt facility;

processing payments made using a transactional credit facility;

maintaining an account of points accumulated in accordance with a reward programme associated with the transactional credit facility; and

selectively redeeming some or all of the accumulated reward points as credit against the secured debt facility.

8. A computer system of administering a financial product, the computer system comprising:

means for providing to a customer (i) a secured debt facility and (ii) a transactional credit facility having an associated reward programme;

means for maintaining an account of reward points accumulated by the purchaser in accordance with the reward programme associated with the transactional credit facility (ii); and

means for allocating, on behalf of the purchaser, the accumulated reward points as a credit against the secured debt facility (i).

9. A computer software, recorded on a medium, for admimstering a financial product, the computer software comprising:

software code means for providing to a customer (i) a secured debt facility and (ii) a transactional credit facility having an associated reward programme; software code means for maintaining an account of reward points accumulated by the purchaser in accordance with the reward programme associated with the transactional credit facility (ii); and

software code means for allocating, on behalf of the purchaser, the accumulated reward points as a credit against the secured debt facility (i).

10. A computer system for administering a financial product, the computer system comprising:

means for maintaining an account of monies owing in respect of a secured debt facility;

means for processing payments made using a transactional credit facility;

means for maintaining an account of points accumulated in accordance with a reward programme associated with the transactional credit facility; and

means for selectively redeeming some or all of the accumulated reward points as credit against the secured debt facility.

11. Computer software, recorded on the medium, for administering a financial product, the computer software comprising:

software code means for maintaining an account of monies owing in respect of a secured debt facility;

software code means for processing payments made using a transactional credit facility; software code means for maintaimng an account of points accumulated in accordance with a reward programme associated with the transactional credit facility; and

software code means for selectively redeeming some or all of the accumulated reward points as credit against the secured debt facility.