There are two universal truths when it comes to banking and customer loyalty. First, banks want their credit card to be the preferred payment tender at the time of purchase, and second, they want to retain customers. Back in 1984, Diners Club created the industry’s first card-based rewards program.

The company sought to incentivize card usage by assigning points to different purchases, making it even more appealing to be a Clubmember. It worked—the trend caught on, demand for Diners Club cards grew, and eventually, card-based rewards became standard practice. Ever since then, card issuers have continued to invest in the consumer relationship, adjusting their loyalty programs to align with the way people shop. The Diners Club card was “version one” of customer incentives, providing a baseline for rewarding purchase behavior.  Striving for Customer Loyalty As consumer shopping transitioned online, so did credit card rewards.

First movers in this space, including Chase Dining and Cardlytics, made it easier for banks to promote card-linked offers and experiences. These exclusive offers served up on a bank’s website or mobile app were “version two” of customer incentives, meeting consumers at a time and place when they are thinking about their buying habits—and giving them more reasons to use their card. These types of rewards programs help banks meet their strategic priorities by cultivating customer loyalty and increasing average revenue per user (ARPU). On the loyalty side, we know that saving money is a big incentive for consumers.

Serving up a discount can influence behavior and also increase the likelihood that consumers will keep making purchases with their credit card. Another benefit of rewards and cash back programs is that they increase customer retention – which is incredibly important to banks – and can help lower the cost of acquiring new customers. But the rewards program space has become more crowded as new players enter the field, and with it, consumers now have set a higher bar for which programs are worth their time and attention. Banks need a way to differentiate the value they offer to their customers, and to do so, they need to participate in e-commerce in a more meaningful way.

Owning the customer relationship higher up in the funnel—such as the point of discovery—provides the opportunity to direct customer eyeballs and stay top-of-wallet regardless of payment tender. Since there’s no “sticker on the door” in e-commerce, banks need ways to remind consumers to use their card when shopping online. At the same time, banks need to expand their average revenue per user, and they are exploring innovative ways to do so. Building on Loyalty The next evolution of credit card loyalty is delivering offers that are built for the way people actually shop online.

Rather than opting into an offer before the customer is ready to make a purchase, or navigating through a multi-step conversion path, discounts and deals should be made available right in the browser, surfacing a relevant discount for a site where they’re primed to spend. The next generation of shopping rewards is just part of the shopping journey—no detours, enrollment, or extra steps. White-labeled, embedded rewards platforms are “version three” in the evolution of customer incentives. Embedded rewards providers such as Honey, Capital One Shopping, and Wildfire have tapped into this format, offering discounts to shoppers wherever they are, at the moment they need them: as they are shopping at an online merchant’s site.

These solutions connect a bank’s brand with offers like cash back rewards that incentivize shopping—enabling banks to cultivate consumer loyalty by seamlessly integrating themselves into the natural purchase path to surface a relevant offer, all while keeping their card brand top-of-mind. It also allows banks to tap into new revenue and profit pools through merchant-funded rewards. Through this implementation, banks can achieve their goals of brand awareness, expanded revenue per user, and reduced customer churn.  As we look ahead, I anticipate that we’ll continue to see more innovation in this arena.

While the ways we shop and earn rewards have evolved since the 1980s, banks’ desire to cultivate customer loyalty and stay top-of-wallet has remained consistent—and that’s something that won’t change.

By Neil Kapur
Oct 10, 2023 00:00
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