The Revenue Power of Emerging Financial Services

With interest rates remaining low and traditional fee income impacted by recent government regulations, banks and credit unions are increasingly looking for new ways to make up the shortfall in revenues.

Despite continued pressure from consumers around 'fee anxiety' and our industry's habit of giving most services away for free, there are still opportunities to promote customer loyalty and generate new non-interest sources of income according to new research.

In the most comprehensive fee optimization study of its kind from Market Rates Insight, Inc. entitled, 'Growth and Revenue Potential of Emerging Financial Services', the importance and value of new financial services are evaluated to determine new revenue sources as well as ways to attract and retain customers. In the study, it was found that there is a willingness from consumers to accept 'value-added fees' for services that are viewed as valuable.

"For the foreseeable future, deposit rates will remain flat and loan demand will be soft, so financial institutions will need to rely on fee revenues for income growth," states Dan Geller, EVP of research at Market Rates Insight. "To convert services from 'free' to 'fee', banks and credit unions will have to identify new services that consumers want and are willing to pay for. The study shows organizations how to use service fees to expand profits and penetration with both new and existing customers."

The 150-page study (available here) examines 13 emerging financial services and includes a competitive survey of 10 financial institutions, assessing the importance and value of each service, segmenting banks and credit unions as well as demographic segments for variances. The highlights of the study include:

• Financial institutions can sell four times the number of financial services they currently do by offering more 'leading edge' services consumers find valuable
• Only 13.1 percent of consumers receive emerging financial services from their financial institution, yet 54.6 percent of consumers who don't have these services find them important
• The highest potential from growth in revenue from emerging services is with larger organizations
• The highest ranking services in terms of potential growth are credit score reporting (71.4%), identity theft alerts (70.8%), payment protection services (64.6%) and same-day bill pay (58.7%).
• The value placed on emerging financial services is inversely correlated to the age segment of consumers, with younger consumers placing higher values on the new services evaluated
• Consumers value and will pay a premium for specific bundles of services more than they value individual services, but there is a point of diminishing return for the revenue potential of bundles relative to the expense of additional services
• The mid-range revenue potential for an optimal bundle of emerging services is $10.12 per month.

Growth Potential

The study found that financial institutions are underutilizing the potential for selling emerging financial services to consumers regardless of the institution size or type or consumer demographic segment. Overall, only 13.1 percent of consumers were found to use any of the emerging services reviewed, while 54.6 percent of the consumers surveyed indicated that they would be willing to pay a monthly fee for the service(s). 

While there is significant potential for growth with all sized organizations, the potential was correlated to the size of organization, with larger institutions having a greater opportunity than regional banks, credit unions or smaller financial institutions.

As can be seen from the chart below, there is significant variability between the current use and potential demand for emerging financial services. As could be expected, the use of overdraft protection was currently the highest (42.9%), followed by low balance alerts (23.3%). Interestingly, identity theft protection was the most popular emerging financial service, with 91.9 percent of households desiring this service overall, followed by overdraft services (86.3%) and low balance alerts (80%).

Services with the greatest growth potential in the future include credit score reporting (71.4%), identity theft alerts (70.8%), payment protection services (64.6%) and same-day bill payment (58.7%). In fact, virtually all of the services analyzed had significant upside potential.

"These findings are significant because they come at a time when banks and credit unions are experiencing a decline in fees on traditional services such as NSF and interchange fees due to new regulations and greater scrutiny by the CFPB," states Geller.

Importance and Value of Emerging Financial Services

The level of importance consumers place on various services has a strong and positive correlation to the perceived value of the services. Based on the findings in the report, the services desired supported three major functions in our evolving lifestyle:

1. Concern for digital identity and security: reflected by identity theft alerts and credit score reporting services
2. Increased mobility: reflected by mobile deposit and bill pay services
3. Desire for Efficiency: reflected by the desire for same-day bill pay, person-to-person payments, payment protection and overdraft services 

By evaluating the level of desire for these services and testing different pricing points, banks and credit unions can develop an escalation model of service features. In other words, higher fees can be charged for a premium level of service (same day mobile deposit) with a lower fee charged for a slower level of service.

In the report from Market Rates Insight, each of the 13 emerging financial services were evaluated with regards to level of importance from consumers not already owning the service, with a dollar value placed on each level of importance. An average level of importance and average value was also assigned. Digging even deeper, the report also analyzed each of the 13 services with regard to type/size of institution.

Mobile Deposits

As an example, 46 percent of the consumers who do not currently use mobile deposit services find this service important to some degree, ranging from slightly important (17.5%) to extremely important (3.5%). Based on the study, the average value consumers place on this service is $2.63, with the value jumping to $5.60 for the consumers who find mobile deposit extremely important. The potential is higher for larger institutions, with customers of smaller organizations willing to pay a bit less. 

Mobile Deposit Distribution of Importance (all institutions)

Mobile Deposit Distribution of Value (all institutions)

This analysis is consistent with a separate mobile banking study conducted by ath Power Consulting where it was found that one in three consumers would be willing to pay for some mobile banking services. Remote deposit capture was the most sought after mobile banking feature according to the study.

"Retail customers are becoming less resistant to monthly fees for mobile, with a third saying they would be willing to pay for mobile banking," said Michael McEvoy, ath managing director. That is up from the one in five during last year's study, he said. 

Despite this demand and value placed on the service, banks and credit unions remain reluctant to charge for mobile deposits. While a few banks and credit unions are testing the waters like U.S. Bank and Regions Bank, all are charging substantially less than the price customers are willing to pay according to the research.

Beyond the revenue potential for remote deposit capture, institutions can save operating overhead as well. According to a new report from Javelin Strategy and Research, financial institutions can save $50 for every customer encouraged to use mobile deposits. Javelin estimates that it costs about $4.25 for each deposit made in person in a branch. The same transaction costs $0.10 when done using a remote deposit capture application.

Identity Theft Alerts

Another example of significant revenue potential is with identity theft alerts. Consistent with many recent mobile banking findings around concern for security and desire for more mobile alerts, the potential for generating additional fee income with identity theft alerts (as well as low balance alerts) should not be ignored.

As shown below, 40.8 percent of customers find the offering of identity theft alerts either 'very important' or 'extremely important'. Not only is the distribution of importance skewed positive, but so is the value placed on this emerging service. While those who do not find the service as attractive are willing to pay more for the service, the average monthly value placed on the service is still $2.71.

Identity Theft Alerts Distribution of Importance (all institutions)

IdentityTheft Alert Distribution of Value (all institutions)

In the MRI report, all 13 emerging services are analyzed the same as above for all institution sizes as well as for each financial institution type, providing a way for bank marketers and product managers to compare results for like institutions.

Demographic Perspectives on Emerging Financial Services

The overall average importance of each of the 13 emerging financial services analyzed is relatively similar when viewed based on gender. There are some differences, however, with females finding mobile deposit capture more important than males (72.8% vs. 65%) and male consumers finding prepaid loadable cards more important.

While the differences in importance of emerging financial services is close to identical from a gender perspective, there is a substantial difference in the value that each gender places on these services. In fact, males placed an average value ($4.16) that was close to twice that of their female counterparts ($2.44). 

From a demographic perspective, the MRI study found that the more mature the consumer, the lower the value placed on most emerging financial services. Possibly reflecting the need for more guidance in financial affairs, the younger demographic segments placed a very high value on security, credit reporting and identity theft services, while the Gen Y and Gen X consumer also placed a high value on eldercare services, possibly reflecting the need to care for elder family members.

Finally, as could be expected, there were significant differences in the importance and value of emerging financial services when viewed from an income perspective. 

Revenue Optimization of Emerging Financial Services

As opposed to offering each of these services as part of a menu of individual options a customer can select from, Market Rates Insight found that the bundling of multiple services into logical combinations increased the value potential for banks and credit unions. Obviously, there are many different combinations of services possible, but MRI found that the principle of diminishing returns applies to the bundling of financial services.

Dan Geller states, "The principle of diminishing returns states that demand for services is curved and that any additional consumption beyond the highest point in the curve produces less return. In the case of financial services, the recurring monthly fee consumers are willing to pay for a bundle of services usually begins to diminish after an average of about three combined services."

Interestingly, the optimal point of fee revenue typically occurred before the highest fee-revenue point on the curve.

As a point of illustration, one of the 26 bundles developed by MRI provided the highest fee revenue when low balance alerts, identity theft services, mobile photo bill payment, location-based couponing, eldercare services and payment protection were combined for a total monthly fee of $10.20. 

However, the optimal fee-revenue occurs after bundling only the first three services - low balance alerts, identity theft services and mobile bill payment - for an optimal monthly fee of $8.68. The incremental fee revenue beyond this point begins to diminish significantly, without enough revenue to cover the cost of providing the additional services.

Overall Monthly Fee Income From Bundled Service Package #26

Incremental and Optimal Fee Income From Bundled Service Package #26

Another argument in support of optimizing the service bundle combinations is that many consumers are willing to pay a higher overall monthly fee for the optimal bundle than they would for each service separately. 

For instance, in the above case, study respondents indicated they would pay an average of $2.71 for identity theft services, $2.53 for mobile photo bill pay and $2.43 for low balance alerts. The total fee for these services would be $7.67 individually, while the consumer would pay $8.68 for the optimized bundle - a premium of $1.01 or 13%.

The study provides strong support for the logic of service fee optimization. Twenty-six bundles are featured in the study, with each bundle consisting of an average of three services for an average fee revenue potential of $10.12 per month. When you take into account another finding in the study that 68% of consumers desire these services, an institution can generate an average of about $120 annually in recurring fees from two-thirds of its customer base.

Mission for Financial Marketers and Product Managers

As an industry, we have gotten gun shy around fees due to consumer backlash regarding checking account fees and related services over the past several years. MRI studied bundling this year because in 2012 they found that FIs were giving away too many services for free. According to Rick Barham, CEO and founder of Market Rates Insight, "Our experience told us that it’s very difficult to go from “free to fee” without adding value, and we believed that the best way make this leap was via bundling “free” with other services. Our Study indicates our assumptions were right, and consumers do place importance and value on bundles that support their lifestyles."

This timely study from MRI shows that banks and credit unions no longer need to cower when trying to increase non-interest income. In fact, there are many emerging financial services consumers are willing to pay for either individually or when associated with service bundles.

Conservatively speaking, the study illustrates that institutions who focus on providing valuable services to consumers can generate as much as $10 per month from up to two thirds of the customer base. The key is to use the study results to match data to individual customer segments and to place revenue generation high on the list of strategic priorities for 2013, 2014 and beyond.

Now is the time for financial marketers and product managers to work together to determine the best way to move away from being a utilitarian organization, offering all new services for free to a value focused organization that is willing to assess a fee for value added services.

Find Out More

There’s a lot more to the new 'Growth and Revenue Potential of Emerging Financial Services' study that can't be covered adequately in this blog such as the breakout of results by institution type, the 26 online optimization reports and the competitive analysis, which shows how top financial institutions are integrating these services. In total, there are more than 250 illustrations in the report with high levels of detail that would be valuable to financial marketers and product developers.

Feel free to access the report with the link below. The author of the report, Dan Geller, has also offered to answer questions from my readers about the report by email at dan.geller@marketratesinsight.com.

Additional Insights

Growth and Revenue Potential of Emerging Financial Services (Executive Summary) - Market Rates Insight (June 2013)

Growth and Revenue Potential of Emerging Financial Services (Full Report) - Market Rates Insight (June 2013)

Integrated Study on Service Fees - Market Rates Insight (May 2012)

The Untapped Potential of Emerging Financial Services and Service Bundles  - Market Rates Insight Blog (June 2013)

Mobile Deposits Boom Means More Money For Banks - Market Rates Insight Blog (July 2013)

The 2013 ath Power Mobile Banking Study - ath Power Consulting (June 2013)

Fee Revenue Optimization Analysis - Market Rates Insight (July 2013)

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Bank of America Should Become a Credit Union

I have decided that the best course of action for Bank of America may be to become a credit union. Despite the regulatory hurdles and government scrutiny that the bank would need to deal with, it may be an easier course of action than trying to catch a break with our industry's trade press, the general media and definitely those using social media to respond to every move the bank makes.

For instance, American Banker published a story last week from Ed Roberts entitled, Bank Transfer Day Spurs Big Membership Growth at CUs. The story cited that the credit union industry had near record growth in the second half of 2011 . . . 'after the ill-fated September announcement by Bank of America of monthly debit fees prompted Bank Transfer Day'. This growth of 850,000 members in the final six months of the year contributed to an annual growth for the credit union industry of almost 1.3 million new accounts, reported the NCUA.

According to my calculations, a growth of 850,000 new members for the second half of 2011 represents an average of fewer than one incremental new account per credit union (not per branch) a day. The statistics are roughly the same when you look at the annual growth rate as well. Assuming that the number of new members represented incremental growth, the 1.3 million new members reflect only a 1.4% growth over 2010 according to the 2010 Government Census. 

How does this become newsworthy? In almost all U.S. major newspapers, a version of this article ran including a reference to both Bank Transfer Day and Bank of America. The Los Angeles Times ran a headline, Banks' Fees Pay Off - For Credit Unions while Forbes ran an even more sensationalized headline, Credit Unions Membership Soars as Customers Spurn Big Banks. Does any other industry get as much press for close to flat line growth? Shouldn't this be more realistically considered business as usual? 

And how confused is the general consumer? Just a few short weeks before these reports, many of the same industry and national news organizations covered the Javelin Strategy and Research study that Bank Transfer Day had just a minor impact on money movement despite all of the media coverage. The Financial Brand covered the conflicting numbers being presented, and even the New York Times ran an article entitled, The Exaggerated Impact of Bank Transfer Day.

For news organizations (including the American Banker) to accept what amounts to unfiltered PR releases without determining if it is really 'news' is detrimental to both the banking and credit union industry, and feeds the 'banks are bad' sharks that continue to circle the consumerism waters. Maybe there should be an article this coming week announcing that each of the top 7 banks (and maybe the top 10) opened more than 1 million accounts in 2011 while being beat up in the media daily. To me, that is far more newsworthy than taking a PR feed from the credit union industry and not doing simple math to determine if generating 400,000 accounts in a quarter or 1.3 million last year even moved the needle.

On top of the aforementioned wide distribution of positive credit union PR by major news organizations mentioning Bank of America in a negative light, BofA received additional negative press last Thursday when the Wall Street Journal ran a front page article entitled, Big Bank Weighs Fee Revamp around the potential of the nation's second largest bank expanding a current checking pricing test that began last Fall. As has become commonplace, virtually all major news organizations ran their own version of the same 'old news'. And if that wasn't enough, a Massachusetts official slammed B of A for testing fees that would "burden" many of its customers. 

Unlike the American Banker article around credit union growth done by one of her associates, Maria Aspan did a very admirable job of covering the double edged sword facing Bank of America in her article entitled, B of A Draws New Fire For Old Checking Fee Test. Her reporting (and many of the comments associated with the article) underscored how Bank of America is in a no-win situation, where transparency is required but very painful.

So, instead of Bank of America trying to defend itself against an ongoing barrage of negative press and negative positioning as the reason for the 'growth' of the entire credit union industry, why doesn't BofA change their charter to become a credit union? Like a local credit union, BofA already does a massive level of community giving through their national and local philanthropy (over $200 million in 2010). They also offer loans and services on a local level, investing in the communities and small businesses they serve. The only thing they don't seem to get on the same level as credit unions is good press.

I don't have anything against the credit union industry or even the American Banker. I just wish that coverage of the industry (and of Bank of America) would be less sensationalized and biased and that the financial witch hunt would end. It definitely isn't good for Bank of America and I don't think it is very good for either the banking or credit union industries.

What do you think?

Big Data Provides Big Opportunity for Bank Loyalty

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).

To get an insider view of the challenges and opportunities available to banks today in the area of rewards and loyalty, I reached out to the leaders of four companies that provide unique solutions to the banking industry and who also will be co-panelists with me at the upcoming BAI Payments Connect 2012 Conference & Expo in a session entitled “Rewards in a Mobile Banking Environment.” 

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.

Note: An abridged version of this interview is also located as a BAI Banking Strategies article entitled, Big Data Drives 'Loyalty Trifecta' for Banks.

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, merchant 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.