When consumers think about banking it often falls into the necessary evil category, but that stereotype is beginning to change: the 2013 Maritz Loyalty Report found that 73% of respondents are pleased with their financial services loyalty program.
Don Hughes, Kobie Marketing’s Chief Information Officer, recently talked with me about the loyalty landscape within the financial services sector, including the benefits of new engagement channels, connected consumers and the challenges of economic regulation and security threats.
What does the financial services loyalty landscape look like today?
The current financial services landscape can be categorized in two areas: single-product and multiproduct programs.
Single-product loyalty programs are batched in nature. This means financial institutions send account-level data into the loyalty environment, as well as all of the transactions against that particular person (whether using credit or debit cards), but typically covering a single product.
Multiproduct programs are an enterprise product approach wherein the bank or financial services institution is in the process of implementing multiple financial products into one loyalty program. These are less common now, especially after the implementation of the Durbin Amendment, which reduced debit card interchange fees (usage fees charged to merchants), in 2010.. The best example of a current multiproduct program in an enterprise loyalty environment I can give would be Capital One, leveraged by the Tesus loyalty program that I designed while at that company.
What has impacted loyalty programs within the last 2-3 years?
From an overall industry perspective, the global economic crisis was probably the most significant negative impact with banks being pulled out of service as a result of their debt-to-asset ratios. Regarding loyalty programs specifically, one of the largest impacts was the Durbin Amendment and the reduction of debit card interchange fees. Debit card-linked loyalty programs were quite widespread prior to 2010 – and the fees merchants paid partly funded their success. However, most financial services loyalty programs have now eliminated them and have sought additional services, such as couponing, discounts and daily deals for their debit card loyalty propositions.
On the up side, consumers are much more open to interacting with financial services institutions directly through their smartphones. Thanks to both channel convergence and new loyalty, CRM, mobile and payments technologies, banks are able to send highly personalized location-based offers and merchant opportunities for additional loyalty earnings to consumers’ smartphones whether they’re in the bank lobby or miles away.
What are some of the biggest loyalty challenges facing the financial services industry?
Technical complexity and auditing requirements as well as security and compliance costs are on the rise. Every year, additional audit requirements for PCI, DSS or SSAE16 increase the base cost of performing loyalty services. At the same time, programs are experiencing revenue leakage due to the decrease in earnings from interchange reductions. All of these factors present significant challenges to the industry.
Service providers also need to get smarter about how they operationalize the work they do on behalf of financial services clients. “Doing more with less” is here to stay and the reality is that it’s extremely easy, especially within a single product loyalty environment, to switch from one loyalty provider to another. There are a lot of loyalty startups that will disappear within a few years as getting into the game is so difficult today compared with how it was five or ten years ago.
The bottom line
While the global economic crisis forced many bank closures and the resulting Durbin Amendment (an addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) have severely reduced merchant interchange fees, these challenges have also forced some new loyalty program innovations but that isn’t enough. Financial service loyalty programs must push beyond existing thinking to drive engagement with increasingly tech-savvy customers.
How have these circumstances impacted financial services loyalty programs and their customer engagement success? We’ll be exploring this further in an upcoming post, “Financial Loyalty Programs in Perspective: The Path toward Engagement Success.” In the meantime, why not share your thoughts with the Kobie community below or email us at email@example.com.