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Does your customer loyalty scheme need a health check?
Need to reduce contingent liabilities?
Can't see the wood for the trees?
Contact our customer loyalty consultants today
Does your customer loyalty scheme need a health check?
Need to reduce contingent liabilities?
Can't see the wood for the trees?
Contact our customer loyalty consultants today
Credit Card Loyalty SchemesLoyalty schemes have been operating now for many years, with the airlines orchestrating the most notable schemes to increase market share and customer retention for their respective businesses.
Over time, the fully funded airline loyalty schemes have proven to be expensive, and “strategic Alliances” have been formed with associated and related businesses in an attempt to defray the costs of providing loyalty schemes, (e.g. with Car Rental Companies, Hotels, Banks etc.) and these have been generally well accepted by the joint customers of the respective industries.
Loyalty schemes are rather simplistic in the way that they operate in that the business rewards their customers with value for using their respective services, and enables these customers to redeem this value against goods and services provided by the Principal loyalty provider, or affiliate providers. The “bottom line” is that this service is provided at a cost that has to be funded.
Credit Card loyalty schemes are no different to airline loyalty in most respects; the Bank provides added value to their card customers for using their card for normal purchases. This value is provided directly by the Banks themselves or through special offers provided by affiliate or redemption partners.
Generally, the early adaptors of credit card loyalty, (e.g. Citi Bank, AMEX etc.) provided loyalty funding from revenues generated through “Issuer Interchange”, this is a fee payable by the “Acquirer” to the” Issuer” on a percentage of the value of the transaction completed on the relevant card.
The loyalty value was then able to be redeemed through the Bank’s customer being able to select specific goods (usually provided through catalogue brochures to the Bank’s client). This process has proven over time to be quite complex and expensive for the card “Issuer” to maintain and manage.
Savvy consumers realised that the value being provided was extraordinarily low when compared to the actual spend that the cardholder had made with the relevant card. This concept has now evolved with the Banks now competing against one and other to invigorate their loyalty schemes and this has resulted in:
However, the ongoing efficient management of these respective schemes is still labour intensive and expensive for Banks in maintaining and awarding customer loyalty value and continually having to innovate and upgrade their partner loyalty reward and redemption partners.
Most modern CMS (Card Management System) have inbuilt loyalty schemes that enables the awarding and accounting of points value to individual clients based on card spend. However specific bonus point management (either through affiliate partners or specific retail spend) has an operational and expense overhead associated with it.
Redemption of rewards is still generally completed through a manual process that also has to be managed by the Banks either through catalogue brochures, or by management of specific rewards on individually arranged promotions. There are specific loyalty management companies, however these companies ultimately must still rely on the specific customer reward and contact data provided to them by the individual Issuers, and this in turn does not entirely alleviate the expense of loyalty management to the Banks. Banks also are extremely protective of their customer data so the release of this data to a third party provider creates ongoing concerns for them.
Technology of course has assisted Banks in managing their loyalty programmes, the introduction of EMV necessarily requires Banks to place a 'microchip' on their cards, and some Banks have decided to install a larger capacity chip so that additional functionality can be provided to the cardholder (including loyalty) by utilising this space to advantage.
The use of this technology can be directly linked to card usage, special offers at specific retailers (e.g. by time of day, by day of week, by value etc.), however this solution does not alleviate the loyalty management expense of the Issuing Bank.
With this scenario banks also have to technically manage the functionality on the card (e.g. managing lost and stolen, on-line functionality etc.) as well as manage the back office accounting and reconciliation requirements.
The concept of customer loyalty for credit card Issuers has evolved very quickly over the past 10 years, so much so that loyalty is now seen as a “cost of doing business” for many Banks and with their 'Issuer Interchange' being continually under pressure in many regions:
Whilst EMV addresses the issues of costs in some ways, Issuers will generally also receive a reduced Issuer fee for EMV completed transaction. The roll-out of EMV has been very slow with the Americas having barely commenced this task and Banks in other regions are struggling to justify the cost of implementing the scheme.
Banks that will succeed in the loyalty stakes are those that can develop a simplistic, value for money solution that will involve strong and sustainable loyalty partners with aspirational benefits providing perceived value for money solutions. The reward and redemption process will have to be seamless and consistent, efficient in distribution.
Banks also will need to strategically review and decide which customers they wish to reward and the reasons that they wish to reward them.
One size fits all does not work and levels of loyalty must be developed for individual customer groups.
In summation, Banks now have to be innovative in the loyalty programmes they are providing their customers, the offering must be unique, simple and tailored to specific market segments of their card portfolio. It must generate the required customer excitement experience to generate loyalty and to attract new desired customers to relative specific market segments.
Simply stated, “ME TOO” products no longer work or deliver the desired results. Customers are more sophisticated and are demanding more from their Banks, those Banks that recognise the opportunities to provide unique loyalty services will generate success at the expense of their competitors.
Author: John Rummery
John has a wealth of experience in card payment operations and processing in Australia, Asia and the Middle East, spanning over 20 years.
John is now applying his experience in both debit and credit card management, in a consultancy role, where he is currently working extensively throughout the Middle East, Australia and South East Asia. More ...
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Source: OVC Marketing - OVC Articles