Successful loyalty programmes have been proven to improve response rates, increase customer spend and reduce account attrition, but new research estimates that 70% of spending by credit card issuers is associated with products that offer loyalty benefits to cardholders.
Payment card-based reward programmes have evolved into an essential feature for every tier-one credit card issuer. American Express pioneered the concept of rewarding customers for their loyalty as part of their spend-centric strategy - and commercial banks have long sought to re-enact the company's decades-long success with the concept.
Lessons in loyalty
New research from TowerGroup, Lessons in Loyalty: A Look Inside the American Express Rewards programme by Brian Riley, senior analyst in the Bank Cards practice, notes that American Express's card business model is built on a premise that the card product can generate more revenue by capturing and leveraging information about card member spending requirements, than by meeting its cardholders' lending needs.
The report also offers insight to other bank card issuers on how they can leverage some of the competitive features that have given Amex an edge in the loyalty game.
American Express operates on a platform that is different from the branded networks of MasterCard and Visa because it controls the customer and merchant base. Controlling both sides of the transaction gives American Express unique access to both buying and selling information.
The company uses this closed payment loop as a strategic advantage, building merchant and consumer relationships and then leveraging its reconnaissance on purchase habits to customise its rewards offerings.
While banks may not be able to emulate this specific feature of American Express's business model, they can and should map their own strengths to a closed-loop rewards programme. These strengths include an open processing network, universal acceptance, broader customer selection, and a natural path to other retail banking products.