THE LUMIN LAB

How To Set Up a Digital Bank Rewards Program To Improve User Loyalty

Circa 1968: Bank rewards programs meant you received a toaster for depositing money in a new checking account (toasters were popular wedding gifts back then). Fast forward to 2009, and you might receive $150 to open an account at KeyBank. That’s certainly better, but it’s not how banks and credit unions keep users loyal and satisfied.

In the past, the philosophy was that once you reeled in a user with a giveaway, you tied them in with direct deposit, bounce protection and a line of credit. That may have been all you needed to keep them — but times have changed. These days, you can’t count on creating user loyalty with a toaster or even a small wad of cash. That’s why bank loyalty programs are more important than ever.

During the 1990s, as a young marketing manager, I worked on Citibank’s co-branded credit card venture with American Airlines. The AAdvantage program was one of the first of its kind and has grown to include millions of loyal users. These days, the scores of loyalty programs out there are more popular for one simple reason: they work. But they are not without challenges.

Today, users are savvier than ever; a me-too bank loyalty program is not all you need. But make no mistake: A well-designed rewards program remains an essential element of a holistic approach to user loyalty.

User Loyalty Matters More Than Ever

According to a 2021 Deloitte report, 72% of users overall are satisfied or very satisfied with their banks or credit unions. That’s not bad, considering the unprecedented pace of change forced by the pandemic. Just 6% of baby boomers, who still hold the vast majority of assets, are likely or somewhat likely to switch financial institutions. Following the slightly bumpy road to digitalization, they could be tempted to breathe a sigh of relief.

But not so fast. Although baby boomers are staying put, younger folks are more open to change. Some 28% of millennials and 20% of Gen Z have a wandering eye, and there are several reasons for that. For boomers and Generation X, switching costs are much higher — it’s still cheaper to keep ‘er. Younger generations, on the other hand, may have fewer accounts and entanglements. 

The second reason is that many young people lack the financial security of older generations. It’s an oft-repeated refrain these days, but millennials and Gen Z want to be, and probably need to be, smarter with their money at an earlier age than their parents and grandparents. 

There is a third reason, as well. Millennials and Gen Z want service that is personalized and relevant to their lives right now. This underscores a critical point: Your most valuable users, at every age, demand more than a transactional relationship. 

Digital Banking Rewards Programs

Bank rewards programs provide incentives to users to use their credit cards or other bank services, such as a loan or mortgage. A well-designed bank loyalty program can humanize the banking experience, providing critical touchpoints as well as a series of feel-good moments that keep users engaged. 

Back in the 90s, as hard as we tried, we could only guess what our users wanted and needed based on their demographics and their assets on deposit. Today, banks and credit unions have rich sources of data at their fingertips. This data should inform how rewards programs are designed so that they can be relevant on a user-by-user basis. 

The goal of any loyalty program is threefold:

  1. Generate user loyalty and deepen user relationships.
  2. Enhance service offerings and expand online presence.
  3. Provide genuine user value that flows to the bottom line.

Types of Reward Programs

There are many types of programs. They include:

  • Net purchases: Customers earn points based on overall spending or in certain categories, for example, travel on partner airlines.
  • Tiered: Rewards are based on the user’s bank balance. In addition to earning points on credit card spending, the member may enjoy benefits such as interest rate reduction, a booster on saving account interest and fees waived. The rate of points earned grows with the account balance.
  • Fee-based: British-based Barclays Bank charges its reward program participants £5 monthly, but users earn £5 with their monthly direct deposit. Users earn cashback when they make their Barclay’s mortgage and life insurance payments.
  • Young Savers: Zions Bank pays $1 for each A grade and the money is deposited into a Young Savers Account. Each A grade wins an entry into a scholarship savings account.

Points earned can be redeemed, for example, for cash, merchandise, gift cards, travel discounts, charity donations, online auctions, Amazon or PayPal purchases and more. A few programs even allow users to share rewards. For any program, the goal is to maximize CLV as well as to provide value for the bank.

5 Tips for Success

It’s nearly a perfect storm. Digital technologies are lowering the barriers to entry. New entrants are disrupting the industry. And, to top it all off, according to a 2019 KPMG survey, 75% of users say they would switch brands for a better loyalty program

Yet loyalty programs are table stakes these days. So there is little question that you should have one — but not just any program will do. In that same KPMG survey, 96% say that loyalty programs could be improved. So what’s the problem? Users are either unaware of the bank rewards program or they find them difficult and uninspiring to use. 

Fortunately, banks and credit unions can stem the tide of attrition before it gets to a critical point through holistic programs that generate user loyalty. Here are five essential tips for a successful program. 

1. Identify the Target

First, you’ll need to understand the demographics of your user base and which products and services you should offer them. Your rewards program will not appeal to everyone and that’s not really the goal. Make it relevant for your high-value users. 

2. Personalize the Rewards

Use your data to understand your user’s habits and predict their needs. Beyond the demographics, you want to know who they are; what appeals to them; how they spend their time and money; and how to best connect with them so that you can offer rewards that attract and retain them for the long haul. Your loyalty program should complement your lifestyle marketing efforts and reward participants as they, for example, grow their assets. This is the premise of Bank of America’s tiered reward structure.

3. Refine the Digital Experience

Ensure that your onboarding process for enrolling users in the program is flawless. These are — or have the potential to be — your best users. An invitation to enter the rewards program is a little like rolling out the red carpet to a premier event. Make sure it is smooth and seamless. In addition, the program must be transparent and easy to use. Promote the value to your users with personalized messages and identify the touchpoints for future communication.

4. Optimize for Online

Make sure your digital platform offers an intuitive and seamless experience. Digital users do not want to go into the branch or make a phone call. Let your users solve their own problems online. CapitalOne gets it right with its Purchase Erasure program: If users forget to use points on an airline ticket, they can easily submit the purchase for up to 90 days. 

5. Gamify the Program

When you gamify your rewards program, you make it visually appealing and engaging to a large segment of the population. Plus, game elements allow you to differentiate your program. Gaming elements might include bonus points, levels of achievement, leaderboards, avatars, bots, badges and/or progress charts or prizes. A common use of game elements, for example, is awarding a badge for switching to paperless statements, meeting a savings goal or other desired behaviors. 

Keep Your Best Users

Do you have the right strategies in place to retain the right users? Loyal users buy more, cost less to serve, pay premium prices and refer your services to others. Employ the strategies outlined here to optimize your rewards program. Revisit the program periodically and make the necessary tweaks so that you continue to meet your goals. Above all, remember that the bank rewards program is just one part of a holistic strategy. 

Want to bring the best solutions to your users? You’ll need to onboard them first. Lumin Digital helps banks and credit unions deploy cloud-based next-generation digital solutions that scale with your user base. Contact Lumin Digital today.

Pamela Michaels Fay is a business, financial, technology, legal and lifestyle writer, whose work is informed by over 20 years of strategy, leadership and organizational development consulting for Fortune 500 companies.

Sources:

Deloitte – Building on the digital banking momentum

KPMG – The truth about customer loyalty