By Kathryn Argiriou

In Canada and globally financial institutions have always operated in an environment of rapid change and uncertainty. New and evolving banking models are being driven by changing consumer needs, increased regulation, new types of competitors and innovations in technology. More specifically, players within this space are facing a need to adapt to changing customer behaviours and preferences as an effort to stay relevant and to communicate effectively with customers.

Considering these developments, customer acquisition schemes are decreasing, and customer loyalty and retention are increasingly becoming important. Some banks are responding by taking a broader view of loyalty and mimicking some of the successes from other industries, such as retail and travel. They are attempting to move away from product-focused approaches to more holistic, customer-centric ones, relying on the entire customer relationship across various products and services.

In this ever-changing environment, finding ways to stimulate and encourage participation in loyalty programmes is progressively gaining attention. Unsurprisingly, loyalty programme members who redeem rewards are highly valuable customers. Experience and research have demonstrated that these customers spend considerably more on their credit cards compared to those who do not take advantage of the programmes’ benefits. These customers are also more loyal and tend to keep their credit cards for longer periods and are less likely to churn. Lastly, credit card holders who actively make use of their cards’ rewards programmes tend to make greater user of all the other products they have with their banks.

Are banks fully reaping loyalty benefits?

Credit card loyalty programmes offer many more benefits to financial institutions. First and foremost, they allow consumers to pool rewards gained across other relationships, products, services and interactions. Thanks to various coalitions and partnerships, credit card programmes act as important accelerators that consumers are taking advantage of to facilitate and expedite redemption opportunities.

These programmes also help gain customer mind-share as they help influence interactions and behaviours across the entire relationships with their banks. Given these programmes’ structures and mechanisms, they can easily entice customers to open additional accounts and use certain products and services more intensively to earn additional rewards and points to get them closer to redemption and benefits.

Here’s a critical caveat. Although these programmes offer incredible advantages, very few players within the space are truly leveraging them to the fullest extent possible. Until only recently, many banks still ran their operations in product silos. That made it difficult for them to understand the true value of customers’ total relationships, which inhibited their abilities to incent customers accordingly based on the commitments, loyalty and extent of the relationships.

The following are a few levers that banks can leverage to help maximize the effectiveness of their credit card loyalty programmes and continue driving loyalty and engagement:

Move from points to alternative rewards

As Millennials reach a point in their lives where they are making important financial decisions, banks need to do everything they can to attract this important segment of the population and foster their loyalty. To do so banks need to understand them. The Millennials could care less about traditional forms of rewards (points). Instead they want to interact and transact with institutions that stand for common values and which reward customers not solely based on transactions and the number of products held at one institution, but for engagement-based behaviours such as social media interactions and client and family referrals.

Customers (including in the same generation, like Millennials), are not created equal. As such, they perceive reward programmes differently. What appeals to one consumer may have no value to another. Alternative rewards should include discounts on bank products and services, interest rate bonuses, service level guarantees and third-party reward programmes. A broad array of rewards is necessary to ensure that all customers perceive value; a differentiated range of reward options ensures that customers are rewarded based on the value of their total relationships.

Seamless redemptions

Enabling easier redemptions tends to improve customer experience and encourages greater loyalty programme participation. Banks can help reduce friction for loyalty members by making it easier to meet redemption thresholds and benefit from rewards.

Consumers are increasingly turning to digital channels to continue interacting with their banks. Services such as cashing a cheque, investing in a specific stock, transferring funds to a family member or applying for a loan can now be easily completed from the comfort of one’s home. In the same line, to continue engaging with customers, banks have no choice but to ensure that customers can access and benefit from reward offerings through the use of offline, online and mobile channels.

Effective communication

There is certainly room for banks to improve their communications in order to better educate customers on their rewards programmes and how to participate in them as well. These types of communications should be incorporated into each customer’s life cycle and should incorporate elements of personalization that allow the customer to feel recognized, special and unique.

Reminding customers of their last redemption activities or providing tips and ways to get closer to their next redemptions are only a few examples of elements that can be leveraged in continuous dialogues with customers. They can also be used to leverage their loyalty programmes to develop relevant and contextual messaging. In both cases they keep the banks top of mind to customers: that the institutions are present and available to help and guide them along their customer journeys.

Data-driven marketing

Banks can leverage data more effectively to create stronger and more meaningful relationships with their customers. Those that adopt these types of practices have demonstrated strong results by significantly increasing card spend and retention among credit card holders. With the plethora of information that is available through the transaction logs of consumers’ credit cards predicting customers’ needs in real time and serving them accordingly, should allow banks to benefit from more enhanced and relevant marketing and stand out from the competition.

When implemented and leveraged properly, credit card loyalty programmes bring significant benefits to financial institutions. These programmes provide banks opportunities to reward, recognize and re-engage with their customers. They are also an opportunity to move away from the short-term strategies of product-centric loyalty schemes in favour of a longer-term approach that fosters true customer loyalty and engagement across a relationship that spans multiple products and services.

Kathryn Argiriou is director, consulting services, Relation 1 (www.relation1.com).

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