Payments Leader

Is Loyalty the New Currency?

June 29, 2017

David Johnson I Senior Vice President, Emerging Commerce Products


Sixty-four percent of consumers won’t even consider applying for a card without rewards. Can you afford to miss out?

Earning top-of-wallet privileges from consumers requires deeper thinking about the what, when, where, why and how of loyalty rewards. But the most important ingredient is simplicity.

Since their inception more than 100 years ago, loyalty programs have changed the way consumers interact with the companies from which they purchase products and services. Readers of a certain age probably still remember collecting S&H Green Stamps and the sticky tongue that went with it. As credit cards gained prominence, however, the collection of reward points shifted from being collected in physical books to being stored as zeros and ones.

Consumers today expect to earn reward points for their business, and the ability to earn points is occurring in more transactions. Here are just a few examples:

  • Bank of America’s Preferred Rewards program offers interest rate boosters for savings, waivers of ATM transaction fees, complimentary investment trades, mortgage discounts and more.
  • Walgreens was the first to offer Balance Rewards points to Apple Pay users, allowing consumers to load the rewards card to their wallet—just like they would a credit card
  • Retailer credit cards from Amazon, Macy’s Target and more have followed their major competitors by offering rewards points and seemingly endless perks.

Studies show that consumers do more of their business with companies that reward them, which makes these consumers more brand loyal. Our 2016 U.S. Performance Against Customer Expectations (PACE) indicate that rewarding customers for their loyalty continue to be a prime opportunity for institutions to make inroads. But are banking institutions making the most of this opportunity?

There’s No Point if You Can’t Redeem the Points

Consumers can easily earn points as they buy, but redeeming the points is often another matter. With consumers joining on average 14 different rewards programs, it’s hard to keep track of point balances and remember website access credentials. Another sticking point: It’s often hard to claim prizes (assuming there is something worthwhile for the points accrued). This is particularly problematic for prepaid, debit and low transacting credit card users as it can take years to earn enough points for even the simplest of gifts.

We believe there is another way that is good for everyone— the consumer, issuing bank and the merchants.

Three Key Factors for a Strong Loyalty Rewards Program

A strong loyalty reward program has three core focus areas: the consumer, the issuing bank and the merchant.

Every loyalty program has to start with the consumer in mind—making it easy to earn and burn points while providing increased buying power, creating higher brand affinity, and offering more access to deals and offers with a higher perceived value.

A key to making that happen is integration with the point of sale. The experience should be real-time, simple and seamless to the consumer. For example, a flexible, real-time rewards program that starts at the point of sale could offer a consumer a reward based on the current or prior purchase, a cash-back offer on a future purchase, or an instant discount on the purchase in exchange for the points right there in the store.

Alternatively, smaller point numbers could be used to buy into an online sweepstakes or auction where a few points could result in a bigger prize. Additionally, consumers can use the points to buy portions of stocks, play games against others to win more points or even give to charity all via their mobile device. More options: online, via phone or at the POS give the high- and low-point customers simple methods to use their points.

For issuing banks, the goals here are to burn as many points as possible and promote top-of-wallet status— at the lowest cost possible.

Finally, merchants benefit from brand awareness, increased sales, lower transaction costs and repeat customers. Once the consumer experiences a purchasing process and gets to burn points to save money right at the POS, the consumer comes back over and over again!

Loyalty Interoperability

Loyalty has evolved from a points-centric model into a process by which marketers use all consumer touch points, data and insights into the customer responses to increase the efficacy of their marketing communications, programs, and offers. Every brand needs to cultivate a base of devoted customers to drive long-term and sustainable success. And the answer is to make it all as simple as possible.

By developing uniformity across different retail sectors, loyalty points become an adaptable and exchangeable near-currency unit with widespread usage that makes loyalty schemes deeply relevant to consumers’ everyday lives.