New insights into payment card loyalty

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By: Wise Marketer Staff |

Posted on April 30, 2008

This year's Card Forum and Expo in Florida focused on the US credit card and payments business, provide new insights into topics such as customer loyalty, de-coupled debit, and identity theft, according to The Wise Marketer's US contributing editor, Bill Hanifin.

Hanifin served as the moderator for the four-session track entitled 'Customer Loyalty and Retention', explaining that future winners in the card rewards business will be those companies that are committed to innovation.

Improving card loyalty
The session posed four good questions that all payment card marketers will need to answer before setting their own loyalty and rewards strategies:

  1. How can the rewards game be played at a lower cost?
  2. How can programme liability be better managed?
  3. Can reward currencies be used to achieve goals beyond retention?
  4. Is there "life after points", and what's the next wave of innovation?

The case for debit rewards
Vesdia, a provider of merchant funded rewards programmes, made the case for innovation with Eddie Bauer and MasterCard Advisors in a case study of the 'Everyday Points' debit card rewards programme (sponsored by Citizens Bank). The programme was launched in 2007 and now has over a dozen major retailers as partners, representing more than 11,000 participating bricks-and-mortar locations.

Debit cardholders earn between 4% and 20% cash back when using the card to pay for goods at participating merchant locations, and they may also redeem for bank products, experiential rewards, or even swap points with a companion credit card rewards programme. Key partners include Macy's, Eddie Bauer, CVS, and Dunkin' Donuts.

The programme benefits were positive for all involved. Cardholders now have a way of earning up to 25% more than a traditional rewards programme would have offered, and the bank has seen increases in both debit card activation and usage, as well as a 20% reduction in reward costs. In some cases, merchants reported a 5.5% market share increase over competitors that were not participating in the programme.

Rewards across all products
Another innovative approach was presented by Affinity Solutions and The South Financial Group (a holding company that targets the Southeast with its Carolina First and Mercantile Bank franchises). The bank was new to the rewards business, and began with merchant funded debit card rewards. However, the company soon expanded its loyalty offering to include a wider range of its banking products, including home equity loans, online banking, bill payments, residential mortgages, and small business products.

The programme was launched in late 2007 and, although specific results were not shared in detail, cardholder feedback was said to be "highly positive" and participating merchants have reporting being "pleased with increased patronage" from Carolina First cardholders. During the presentation, a new partnership between Affinity Solutions and First Data Resources (FDR) was also announced, through which Affinity was made FDR's main supplier of merchant funded reward programmes.

Solving loyalty fatigue
In a panel discussion entitled 'Solutions for Loyalty Fatigue', many new insights were raised, with ideas being put forward on how companies can come up with innovative ideas and inject new life into both new and existing products:

  • Martin Hood of American Express Incentive Services (AEIS) explained how Intercontinental Hotel Group (IHG) had enabled its loyalty programme members to trade their accumulated nights for free stays at any hotel - competitors included.
  • Bill Shaw of Citizens Bank discussed a successful card rewards programme that has been continually updated and expanded with merchant participation to maintain cardholder interest.
  • Kevin Lewis of TSYS Loyalty discussed the recent introduction of TSYS Enterprise Rewards, a platform which calculates points and rewards for customers who subscribe to multiple products with a single financial institution.
  • A presentation by Access Development, Zions Bank, and Overstock.com entitled 'The power of community-based rewards' explained how Access had helped Zions Bank to launch its 'Cash Rewards' programme, which rewards cheque card and credit cardholders with up to 50% cash back when shopping at designated local and online merchants. The bank reported increased spending and improved customer retention among cardholders, while Overstock.com reported higher customer satisfaction through its participation in the programme.

One key conclusion of the conference was that, by getting merchants to share the cost of rewards, financial liability is much more easily controlled.

Also, the enterprise approach to loyalty illustrates how several objectives can be addressed with a single rewards programme.

And finally, as card issuers continue to create innovative value propositions for their cardholders, they must remain attentive to merchant satisfaction and retention if their programmes are to survive.

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