In a new regulatory environment, banks are faced with changing the foundation of rewards programs that were previously funded by interchange income from credit and debit cards. With debit interchange funding gone, FIs still need to continue to find ways to improve bank loyalty and drive the desired card behavior. In addition, banks need to leverage “big data” and mobile payments in the hope that they can replace some of the revenue lost as a result of Reg E and the Durbin Amendment. Optimally, the future of rewards and loyalty will allow banks and credit unions to take advantage of the “Loyalty Trifecta” (my term for bringing together the benefits of 1) payment and transactional insight, 2) targeted offers and personalized communication as well as 3) mobile offers and payments).
Thanks to Tom Beecher, CEO, Cartera Commerce Inc.; Rob Heiser, President and CEO, Segmint; Schwark Satyavolu, CEO, Truaxis; and Rod Witmond, senior vice president, Product Management & Marketing, Cardlytics Inc who agreed to participate in the panel and contribute to this interview
. Q: What’s the current status of the banking rewards environment today and how can it be improved upon?
Witmond: Previously, U.S. banks brought offers to customers in a separate section of the bank website – often referred to as an “online mall.” Only a small percentage of their customers went there. It was not a loyalty solution. Various bank rewards solutions required the customer to enroll their card at a separate site and then hope they remembered to shop at a group of merchants providing lackluster discounts. Low engagement or difficult-to-use approaches won’t strengthen a retailer’s relationship with customers or move the needle on sales – for the merchant or the bank.
The banks’ business cases for the early generation, merchant-funded rewards programs promised significant earnings to the banks driven by large revenue shares. For the reasons stated above, retailers did not see these solutions as adding value to their current marketing mix and budgets did not shift. U.S. banks ended up with a big piece of a very small pie. New enhancements from loyalty vendors have refined the early approaches on several fronts.
Beecher: The scope and strategies for banking rewards have changed dramatically in the past two years. Durbin has forced banks to re-imagine how loyalty programs are designed and funded. Also, the development of card-linked offers – where consumers earn cashback or points when using their bank’s payment card at participating merchants – has opened up new incremental revenue opportunities for banks. Finally, the growth of Groupon and deals in general has made consumers (and banks) much more aware of the power and importance of local merchants and online offers.
Satyavolu: Most banking rewards in the past had four defining aspects: 1) they were mostly available on credit cards and less frequently on debit cards (due to being funded by interchange from merchants); 2) they were mostly one-size-fits-all (everybody gets the same extra points/cash-back on certain categories whether or not you shop there); 3) they were typically limited to cash-back or points back benefits; and 4) merchants were not involved in the creation of these benefits.
Heiser: The way FIs interact, engage and communicate is driven more and more by their customers’ technological lifestyles. While merchant-funded reward programs were one of the first to react to this shift, success today involves the application and technology adoption that is driven by transaction intellect − knowing and understanding the needs of customers.
Q: What are the benefits of your solution (from both a bank and consumer perspective) compared to rewards programs used by banks in the past?
Whitmond: While most rewards programs in the past used a points currency to reward based on the number and/or level of transactions, we now can leverage all of the banks electronic transaction data to isolate customers into finely defined segments. By leveraging purchase transaction data, we enable retailers to invest aggressively to grow their business. Bank customers receive 20% when they shop at new retailer, not 1%. And since the customer is receiving these rewards as part of their online banking experience (where the customer is viewing their relationship 9 times per month and 25% view their relationship daily), retailers realize that customers interact with their offers over a 100 times more than with other digital channels!
Beecher: Instead of the bank funding the rewards program as in the past, merchants pay for the card-linked offers and also pay a commission on the sale which turns into revenue for the bank. Therefore, the bank gains a new incremental revenue stream, and increases customer engagement and card spend. Because Cartera runs these programs as a fully managed, pay-for-performance service, banks can launch and innovate quickly and at low cost. In addition, instead of the customer needing to visit a rewards site to select their gift, redeeming card-linked offers is as simple as swiping their payment card at the participating merchant. The reward is automatically added to the customer's account in the currency set by the bank.
Satyavolu: Due to the advanced analysis of robust transaction data (within the bank's firewalls), the merchant is willing to provide much richer rewards to the customer than they could in a normal online coupon based environment. They already know the customer is 'qualified', therefore a greater incentive can be offered. In addition, while there are national merchants involved in the program, the bank can include local merchants as well which can build a strong bond with a bank's small business and commercial customers. Finally, unlike previous rewards programs that are simply based on transaction levels, today's rewards are much more personalized with the selection of offers being improved as the customer engages in the program. This drives a higher degree of online and mobile engagement with 35% higher login rates.
Heiser: As opposed to being a program based on rewards, Segmint leverages digital marketing technologies to help FIs acquire, cross sell and retain bank customers through dialogue marketing. Our program is driven through the micro-targeting of bank customers and assigning of Key Lifestyle Indicators (KLIs) - unique identifiers based on individual spending patterns and lifestyle trends. If customer engagement is the primary goal, then FIs ability to use KLIs to understand bank customer life events and deliver a comprehensive set of relevant FI products and services is ultimately a win-win for both sides. With today’s savvy consumer expecting to receive highly-targeted and engaging information, this meets their growing demand for personalized service and simplicity.
Q: How can a bank 'customize' your solution to differentiate itself in the marketplace?
Whitmond: Banks have numerous ways in the user interface to design a solution that is completely integrated to their specifications. This not only differentiates our solution from others in the market, but also from other banks that may have installed our solution. Second, because the Cardlytics solution is software loaded onto hardware that is in the bank’s environment, the bank has complete control over the targeting solution. This also means the bank has complete access to any - and all - relevant data fields. As such, the bank has complete control over designing and deploying solutions around the rewards program. This has resulted in customized email, SMS, mobile and social solutions.
Beecher: Cartera programs are private-labeled and customizable for each of our bank partners. Each bank can control the program construct and currency (e.g., cashback, points) , marketing strategy and messaging, merchants and offers to include, consumer experience, and marketing channels to use. Cartera supports the full range of options with technology and services and allows each bank to launch and run a distinct, differentiated program.
Satyavolu: StatementRewards provides each FI access to a web-based dashboard where they can control the nature and quantity of offers their customers will receive. Some of the unique features of our solution include merchant-level purchase insights, geo-aware services, cross-sell capabilities, social networking distribution (customers can share rewards on Facebook and Twitter and brag about their loyalty status level as they shop), gamification (reward discovery incentives), and bill analysis (allowing customers to receive personalized, recommendations to help save money on monthly recurring expenses like wireless, TV service and gas).
Heiser: Data-driven CMOs can utilize Segmint’s analytics engine, instantly-actionable campaign management tool, and ad delivery platform for the micro-targeting of bank customers and to initiate and manage customized experiences. Whether a mix of FI products/services or bank partner offers/discounts, Segmint's solution helps FIs initiate interaction and generate real-time offers when it is the right time for the bank customer. Segmint’s solution also provides unparalleled speed-to-market and comprehensive metrics – ultimately resulting in optimization of marketing spend.
Q: How can your own solution be leveraged in a mobile environment as opposed to an online banking or bricks and mortar environment?
Witmond: The Cardlytics solution is already leveraged in a mobile environment. We have bank solutions for SMS, mobile, and email in the marketplace. Additionally, we have ATM and social media solutions close to deployment. Most banks start with online banking because it provides the greatest exposure to the rewards platform. However, they quickly recognize the value of extending into mobile applications where they have complete control over the data and data fields. As such, they can drive mobile solutions at their own speed. Where a bank cannot deploy a mobile solution quickly, we offer a white-label mobile solution that can be deployed alongside or within an existing FI application.
Beecher: Mobile is an increasingly important channel for communicating with consumers -- particularly with the growth of in-store (national and local) offers. Cartera powers mobile apps that show consumers where they can use their payment card to redeem card-linked offers from nearby merchants. As Cartera partners roll out support for mobile wallets, this capability will become even more powerful by enabling consumers to find and redeem offers entirely via their smartphone.
Satyavolu: Truaxis’s StatementRewards product easily integrates with a FI’s existing mobile banking app to provide additional benefits to banking customers. Through the existing mobile app, bank customers will be able to view all of their rewards, both purchased and available, via the user dashboard. From this user dashboard, customers can instantly view, purchase and redeem rewards directly while they’re on the go. Heiser: Segmint is not a merchant-funded rewards provider and, as such, our philosophy is grounded on generating loyalty through digital engagement with customers. Segmint is device-agnostic and can deliver across virtually any electronic medium. There is no doubt that opportunities exist within the mobile environment, but as with all mediums/channels, success revolves around the actual content delivery.
Q: What innovation do you see on the horizon around loyalty and reward platforms, both in banking and non-banking industries, in terms of leveraging social media?
Witmond: We have banks that have already designed how our solution can extend into social media and are deploying the same. The challenge with social media is that it is a “social experience” all about engaging on a person-to-person basis. That being the case, the extension of the core platform into social is only the first stage and the true challenge is in making the rewards solution one that engages on a person-to-person basis.
Beecher: Innovations in payments, big-data-driven marketing, and loyalty are all merging together to form what will ultimately be a new playbook for companies in these spaces and a new set of winners, including the new card-linked offers space. Mobile payments are seeing new non-banking entrants, all realizing that the incorporation of offers into the wallet is central to consumer adoption.
One of the new frontiers of leveraging big data with marketing is anonymous payment data, where new technologies and entrants are helping banks use transaction data that preserves privacy and provides real benefits to consumers. An example would be my purchase at McDonald’s alerting Burger King to make an offer to me. The entire funding model for bank loyalty programs is being turned on its head with merchants paying consumers through banks to shop with them rather than banks focused on taking money from merchants (through interchange) and then funding rewards themselves.
Satyavolu: The biggest innovation for these platforms will be the continued use of data to drive personalization and cut-costs. Both banking and non-banking industries are sitting on piles of data that they both don’t have the resources to utilize and if they did, they wouldn’t know where to begin. By working with third-party vendors like Truaxis, these companies will finally be able to utilize this data through innovative new techniques.
Analyzing transaction data from FIs is only the tip of the iceberg. As these platforms become more integrated across multiple channels and industries, companies will be able to understand and connect with their customers to provide them with the most value and ensure that each customer has a completely personalized experience that provides them with exactly what they need and want.
The data buried in social networks adds an interesting new twist to the personalization capabilities that are made possible, when you add them to the transaction data streams that FIs already have today. The concept of loyalty marketing will undergo a quantum shift in how it operates and who is in the key enabler seat for merchants, where FIs have a huge opportunity and upside to facilitate these interactions.
Heiser: Social media is a huge game changer for FIs and will become the “biggest bank branch” they operate. With nearly a billion active monthly users on Facebook, FIs must become socially actionable and interact with customers in their channel of choice. Last year Segmint introduced SegmintSocial, our social media technology solution that gives FIs the power to precisely identify their customers on the bank’s Facebook page, customize their experience and engage them in real-time, personalized dialogue.
EMBARKING ON A NEW ERA FOR BANK LOYALTY
We are obviously entering a new era for bank loyalty and reward programs, where banks can leverage transactional and payment data to build a personalized engagement process. Whether the program includes merchant-funded offers or simply uses customer insight to drive greater share of wallet and retention, banks can significantly improve the value of the relationship from both the customer and bank's perspective.
Since we are treading on new territory regarding the use of customer insight, there may be consumer push-back at first as they see rewards/ads integrated on their online banking statement, ATM screen or even their phone. There will be tests of geo-locational marketing with many of these reward program in the near future, where customers may receive their offers via an email or SMS message as they near a participating merchant.
The potential payoff for this new level of engagement is significant, however. According to recent Aite Group research entitled,
The Case for Merchant Funded Incentives: New Opportunities for Card Issuers, m
erchant funded incentives could drive US$1.7 billion in annual revenue for card issuers by 2015. In addition, the number of U.S. cardholders (credit, debit, and prepaid) who subscribe to merchant- funded incentive programs could exceed 460 million by 2015.
“Merchant funded incentives programs are a good deal for card issuers, and offer a new revenue stream,” says Madeline K. Aufseeser, senior analyst with Aite Group and author of the report. “Because the cost to operate merchant-funded incentives is less than that of traditional reward programs and will generate a greater profit per account, card issuers will most likely consider swapping some existing traditional reward programs for merchant funded incentives programs, especially on debit portfolios.” It is definitely a time of change for loyalty, and a time when marketers will be armed with significantly more customer insight to build marketing programs. Rewards and loyalty programs only scratch the surface of opportunity available to savvy bank marketers who can make use of 'big data'.
Is your organization considering or already implementing a new rewards and/loyalty program? How will you engage your customers to participate? Will you 'localize' your program, including local merchants? Will you leverage social media to enhance your customer profiles or help market your program. I would love to hear from you.
