Marketers Ponder The Future of Credit and Debit Card Rewards

Now that the economy is seeing the other side of the recent recession, financial institutions are starting to wonder about the future of credit and debit card reward programs.

Several factors are converging to prompt this question. Customers remain stressed economically, while government regulations—including those on fees credit card companies charge retailers—are increasing. With the mortgage and foreclosure crisis still in full swing and consumers cutting up credit cards in favor of cash, banks are struggling to negotiate success as they rebuild their reputations and relationships with customers.

Because banks are under pressure, cutting the costs of reward programs is top of mind. Some of them treat loyalty efforts as costly burdens simply required to play in the space.

Consider that from 2009 to 2011, growth in loyalty program memberships among the financial sector rose a negligible 1.6%, according to the 2011 Colloquy Loyalty Census, compared with 77% from 2007 to 2009 in Colloquy’s 2009 study. The cause is twofold: Banks have pulled back on credit card and reward card applications, while consumers have consolidated the number of credit cards they carry and how much they are spending on them.

Regions Bank, for one, has recently made a defensive move within a rewards program in the face of likely Federal Reserve limits on interchange fees. Regions will no longer accept enrollment into its Relationship Rewards program, a progressive and comprehensive effort that places value on the total relationship with the customer.

Even in the current challenging environment, expanding their loyalty programs can offer banks tremendous opportunity for growth. Just by tweaking them in a few crucial ways, a bank’s loyalty efforts can go beyond commoditized rewards and be leveraged to attract customers and drive positive behavior.

Here are four tips marketers can use to increase loyalty efforts:

1. Look at net margins, not pure costs. Loyalty program cost-cutting can go too far, as fewer customers will find value in the program and be less motivated to become involved. Instead, focus more on increasing margins by spreading rewards over multiple products or customizing rewards.

2. Provide benefits that add value. Go beyond commoditized rewards to differentiated soft benefits and targeted treatments that motivate best customers.

3. Use data to increase relevance of rewards and boost resource allocation. It’s essential to use data to understand, recognize and reward the customer across products. In addition to focusing on bringing in new customers, ensure that the customers who continue to do business are rewarded.

4. Integrate the rewards program into a robust lifecycle-management effort. By integrating loyalty messaging throughout the customer lifecycle, a company can focus more on driving impact and informing customers about benefits.

Some banks have seized on the opportunity to go on the offensive. PNC has created a Supercharge button that allows customers to switch to a new checking account if they are unhappy with the changes to their current one. Instead of just taking something away—like debit rewards—this tactic allows the customer to make a decision about the appropriate benefits for his/her lifestyle and pocketbook.

Discover offers another example. A year ago, Discover introduced CardBuilder, an online tool that allows customers to design a card with the terms, design and rewards most relevant to their needs. In doing so, Discover is providing customers with a flexible way to manage their finances and customize the card they carry.

CardBuilder exemplifies how a financial marketer can change the tone of the dialogue about credit card practices and place more emphasis on issues—such as transparency and control—which are a high priority for consumers.

Stephanie Cohen is a LoyaltyOne Consulting partner. She can be reached at [email protected]