Payments Leader

How Loyalty Programs Could Revolutionize Commerce in India (Part 1) – by David Johnson

December 14, 2017

David Johnson, Senior Vice President, Emerging Commerce Products

Customer loyalty rewards programs are a necessity for today’s payment providers. They have proven to drive more usage and spend, and anyone who doesn’t offer one is at a clear competitive disadvantage. Meanwhile, we have seen considerable growth in the sophistication of loyalty programs, led mainly by the United States, where on-demand consumers increasing want redemptions in a real-time, seamless experience.

With countries like India leading the way in cashless payments, and growing financial inclusion making more consumers able to participate, loyalty programs are a natural next step.

Customer Loyalty in the U.S.A.

As anyone who owns a business knows, it’s easier to bring customers back than it is to find new ones. Loyalty programs have evolved to add value to the relationship through points, reward choices and more. Now, indications are that consumers want more intimate relationships with the companies they trust.

Traditional loyalty programs offer point-accumulation systems, typically with the possibility to redeem points on items like merchandise, gift cards, and travel. New reward options – such as Premium Payback – have widened and simplified the customer experience by introducing real-time savings at the POS. Additional redemption outlets imaginatively allow for customer participation at any point level and allow for games, lottery and partial stocks.

Most loyalty offerings in the United States today are credit-based products. However, the debit payments and even prepaid services have begun to broaden the scope. While they must operate at a much lower threshold than credit, due to interchange differences, the concept of loyalty as an avenue to top-of-wallet consideration remains the same. With new low point redemption options, including auctions and charitable giving, customers are still given the opportunity to have their payments do more. The U.S. is even seeing loyalty being used as a driver for electronic benefit transfers (EBT), where prudent purchases of essentials earn points and discounts.

A Land of Diversity, Challenges, and Opportunity

Currently, India is the seventh largest economy in the world, and it’s growing at over seven percent annually. With a population of 1.3 billion – one-sixth of the world’s total – spread across 29 states, 22 official languages and thousands of recognized dialects, India is a wildly diverse nation of unique people.

With almost two-thirds of Indians living in rural areas and large disparities in literacy rates, income and education, India’s payment landscape has historically been heavily dominated by cash and checks. However, the move toward digital payments is growing fast and the government is helping to drive it. The country’s 2016 demonetization initiative has expanded access to credit, something only two percent of the population previously possessed, with only eight percent possessing debit cards. As payments in India continue to progress, the expectation is for the adoption rates of both credit and debit to grow significantly in the coming years.

Loyalty programs have been vital in the promotion of electronic payments in the U.S. and other developed nations. The question that remains to be answered is whether it can be a significant accelerator in India, given the different socioeconomic conditions.

Customer Reward Loyalty on an Epic Scale

Given the sheer scale and diversity of the market, India faces some unique challenges to implementing a U.S style loyalty program. For starters, a solution must be developed to successfully interact with a customer base comprised of a notable rural population without reliable internet connections or smartphones. Then, there is the need to present those communications in the proper language, dialect and message to garner customer interest. Finally, the ability for customers to actively track and redeem their points will be critical in helping drive program usage and enriching that relationship.

While e-commerce and electronic retail POS devices in shops are growing fast in India, there are still a significant number of small retailers operating outside of the digital space entirely. Payment acceptance will go a long way in changing consumer behavior, removing the necessity to carry multiple tender options. As we see adoption expand merchant participation, the potential for a successful loyalty program increases as well.

Loyalty offerings will need to be tailored to the desires of the Indian market. Debit’s traditional long-term earning of points before redemption is not likely to be as attractive, especially with most Indians wanting to earn rewards within a few months or instantaneously. Offering the ability to buy a TV or airline ticket that takes years to earn is not the right solution. Therefore, the use of gift cards, instant discounts, additional talk-time and low redemption outlets are predicted as the best means to encourage purchase loyalty in India.

How to Make It Work

The pieces for a successful approach are starting to come into place. Financial institutions across India, eager to reduce the number of under-banked citizens, have been the pioneers of loyalty. Merchants have become more aware of the return and accelerator potential of loyalty programs, often collaborating with financial institutions and payment processors to tie it all together.

India’s growth potential over the next 30 years is momentous. As the e-commerce market matures and evolves, loyalty will become a competitive necessity. Loyalty products in India, especially those that target instant gratification through immediate discounts or redemption, will need to rely on a more digital payment experience, including mobile payments, retail POS terminal and e-commerce. Applying more incentives such as gamification and redemption mechanisms will likely be strong drivers as banks and retailers extend the notion of loyalty programs to a wider audience. The focus will initially be with the financial institutions and major retailers, but success will be linked to how loyalty products can bring in the large rural population and the small-to-medium sized retailers.

Ultimately, winning the market means engaging with and exciting customers. Success means differentiation, whether from the competition or in the payment methods linked to loyalty – i.e., offering debit and prepaid-based reward programs. As India’s loyalty platform comes into focus, the hope is those principles can also apply to other countries across Asia, Africa and South America. The lessons and drivers that apply in the United States and India are not immediately transferable to every new market, but strong similarities remain. As such, there is little reason to suspect that loyalty programs across the world, once tailored to local needs, will follow the American model and drive customer retention and activity in staggering numbers.


David Johnson

Senior Vice President, Emerging Commerce Products

DJ is the Product Division Lead over Loyalty, Prepaid, EBT – Government and Merchant Products. DJ joined FIS in 2007 and has over 20 years of payment industry experience with roles in product development, strategy, consulting and business development. Before FIS, DJ managed Online Banking and Bill Pay for a Top 15 US bank. DJ earned his MBA from Emory University and a degree in Finance from the University of Florida.