Loyalty Programs in Financial Services in 2024
Discover how loyalty programs in financial services can elevate banks and fintech companies to the forefront when customers are seeking the most competitive offers.
Author: Alena Tomchuk
Last updated May 15
Contents
Introduction
Today's world is changing fast with the help of digital technology, and this has also changed how customers view their buying experience. More and more people are using the internet on their mobiles now and it is estimated that 55% of the world population has access to mobile internet on their phone. As of 2021, there were 7.1 billion mobile users globally and nearly double this number (15 billion) in mobile devices.
Those born between 1996 and 2010 make up about a third (32%) of all people worldwide. They are from Generation Z or Gen Z for short. With over 2 billion individuals, Gen Zers are very good at using digital tech. Gen Z’s along with others today want services and products tailored to them; they like personalized services. They also want smooth, easy-to-use experiences when shopping online or using apps. Instant service is also becoming the norm for them.
It's also becoming a norm for customers to switch between different ways of shopping or getting information. As most internet use now happens on phones, being mobile-friendly is very important as well. People also look forward to features such as connections with social media sites and new technology like Augmented Reality (AR), Virtual Reality (VR) and Artificial Intelligence (AI) and the use of this technology is being considered by companies in their loyalty and rewards program.
Modern Loyalty and Rewards Programs
Businesses use modern loyalty and rewards programs to make their customers keep coming back for more purchases. Customers get rewards, discounts, and special offers from these programs. This is how businesses attract people and hold onto them. By offering a prize for buying repeatedly from the same store or brand, they motivate people to be loyal.
Key Characteristics of Modern Loyalty and Rewards Programs
Value:
Loyalty programs work well by adding value. They give special benefits you can't find elsewhere. Take Sephora's Beauty Insider program for instance, it offers members many unique advantages. It is estimated that loyalty program members bring in 12 to 18% more money each year compared to non-members.
Personalization:
Personalization is a big deal for loyalty programs. It helps customers by improving their experience and finding what they need more easily. If we base offers on customer likes, it makes a loyalty program effective. When a program is tailored specifically to members, satisfaction with the program increases by around 6.4x its normal rate. Also, 66% of users feel that such personalized programs help brands understand their shopping habits better.
Constantly optimized:
A good loyalty program always needs improvements. It is necessary to keep the program interesting so that members stay. In the last two years, 60% of people who manage such programs made big changes to them. Companies that lead in loyalty programs see their revenues grow about 2.5 times faster than other companies in the same field.
Seamless experience:
Businesses are now using tech tools such as phone apps and AI chatbots for creating easy loyalty programs. These programs offer quick booking, immediate reward updates, and custom notifications that suit user choices. In fact, these programs can boost sales, too. Half of the users will even alter their shopping habits to step up in loyalty tiers. Most consumers feel that loyalty schemes would make them stick with certain brands.
Always on:
Today's customers want things instantly whenever they desire — a trait older loyalty rewards just can't keep pace with. However, things are changing and new loyalty programs are addressing this concern. Earlier, customers needed to shop over time before getting any prize later on. More recently though - it is apparent that more people connect daily with their membership program.
Challenges in Loyalty Programs
Customer Retention
Loyalty programs often struggle to retain customers. One report found that around 72% of users utilize 50% or even less of their loyalty program memberships. This suggests that these programs aren't engaging enough, leading to a drop in customer retention.
Increased Customer Churn
Many companies running loyalty programs have been losing too many customers lately (churn rate). Studies revealed about a third of businesses see customer loyalty as critical during economic hardships such as inflation or recession times but nearly 67.7 percent intend investing more into retaining customers. This implies that companies are finding it tough keeping up with group affiliation and stopping client loss.
Evolving Customer Expectations
Customers' expectations keep on changing, making it hard for companies to keep loyalty programs interesting and relevant. It is reported that around 90% of consumers think loyalty schemes could be more personalized. It means companies must keep updating their loyalty programs in line with what the customer wants.
Data Analytics and Personalization
Data analytics and personalization are key to loyalty programs, but they're also tough to handle. Many businesses struggle with using customer data right for customizing their loyalty programs. On top, companies need to balance customization needs and privacy, which can make the data analysis process tougher.
Regulatory Compliance
Regulatory compliance is another hurdle for loyalty programs. Companies have to work through a maze of laws including rules against illegal financial activities, protections for customers and regulations focusing on keeping data private before introducing any type of program. Failure to stick by these laws may lead to legal penalties and harm the company's image.
Benefits of Loyalty Programs
Customer retention
Loyalty programs can help retain customers. They give special perks that draw people back for more business. One study showed that such programs lift the chance of a user staying a customer by 25%. Another research also saw positive effects on keeping clients coming back.
Attracting new customers
Not only do loyalty programs benefit recurring customers but they attract new ones as well. Perks for being loyal, bonuses when someone joins and getting good reviews about the business can all bring new faces to the program. A survey indicated that over half of regular buyers in America would sign up for their beloved brands' loyalty program.
Increased engagement
Loyalty programs can increase customer engagement as well. They create an avenue for customers to connect with the brand, building community spirit. A survey showed promising growth in these interactions, where daily interaction with loyalty programs increased from 10% in 2015 to 15% in 2020.
Competitive advantage
Data insights
Loyalty programs also provide companies useful insights from data. This data helps them understand how program members behave and what they might do next. This knowledge further strengthens customer loyalty towards the brand. Companies use this data to learn what really matters to their audiences and identify their most loyal supporters.
Loyalty programs push companies ahead in the race, helping them stand out with special rewards and experiences. A report shows that around 43% of customers join these programs to get weekly purchase rewards.
Types of Financial Services Loyalty Programs
❖ Points-Based Programs
Reward programs that rely on points are quite popular. Customers get points for certain actions or buying specific items. Later, they can use these points to get discounts, goods or other benefits. These reward systems make customers come back and stick with a brand like Sephora's Beauty Insider Program.
❖ Tier-Based Programs
There are also tier-based loyalty programs where you rank up by getting more involved with the brand. The more you buy, the higher your rank and better rewards await at each level. This keeps customers around longer and gets them to value their relationship with the company over time, an example of this is M.A.C Cosmetics' Select Program which has three levels of membership.
❖ Cashback and Rewards Programs
Cashback and rewards programs give back some amount of what customers spend. They're great because they make the customer happy right away, making them want to shop more. A credit card company named Revolut has many cash-back deals depending on what you buy.
❖ Cards Programs
Another way companies reward loyalty is through cards. With these, customers get a physical or digital card that keeps track of their purchases and rewards for them. This method works well since it's easy for users to see how much they've earned over time. An example of this would be the Starbucks Rewards Program, where customers are rewarded stars for the amount they spent. These stars can then later be used to make purchases in Starbucks.
❖ Partnership Programs
Working together can also benefit companies by sharing perks via partnership programs. For this to work, two or more businesses pool resources for better exposure and expanding their clientele, thus offering greater variety and convenience and all under one umbrella program. One example of this can be found in partnerships between Plenti and other brands including AT&T, Exxon, Macy’s.
❖ Referral Programs
A referral program gives customers gifts for suggesting a business to their friends and family. If someone they refer buys something for the first time, the customer gets a prize. Sometimes, even the referred friend gets something as well. Such programs help get new customers, retain old ones and turn everyday buyers into loyal customers of your brand.
❖ Gamification Programs
A game-like feel in shopping is what these programs are about. They aim to make buying fun for shoppers. These loyalty programs can increase customers' interaction with the brand, increase their knowledge about the brand and make users spend more of their lifetime as a customer. Xbox Live Rewards is an excellent example of gamification in a loyalty program, where players are incentivized to win prizes through various tasks inside the game and then use these to make purchases in the Xbox Store.
❖ Loyalty Programs Inside Digital Wallets
Some loyalty programs are part of digital wallets apps now. This helps shoppers earn prizes without any problem or fuss when they use those wallet apps to shop from various businesses. An example of this is the Apple Wallet. Apple Wallet is a digital wallet-based tool that allows users to manage and store their loyalty cards from various businesses.
10 Best Financial Services Loyalty and Rewards Programs
✓ Bank of America Preferred Rewards Program
Bank of America has a special offer for its customers called the Preferred Rewards Program. This program gives you different perks and deals. They are all designed to match how you save, spend, borrow from Bank of America or invest with Merrill. People who join this program usually increase their overall benefits by $500 every year on average. How much you can benefit depends on your combined daily balance over three months.
✓ Wells Fargo Rewards
Wells Fargo Rewards offers a way to earn and use rewards. These can be for many things like money, trips or gift cards. You have the choice to get your reward in cash, use it to buy something, or use it at stores that accept these rewards.
✓ Chase Ultimate Rewards
There's also the Chase Ultimate Rewards, a credit card perks program by Chase Bank. Through this program you can earn special rewards. If you're a cardholder then you can earn reward points which can then be used for making purchases or availing discounts in travel, dining or shopping. You can also use the reward points to get gift cards and Amazon or Apple purchases.
✓ Delta SkyMiles
Delta SkyMiles is not just a program for frequent flyers. It's a loyalty plan by Delta Air Lines that anyone can join. Members of SkyMiles collect miles while flying with Delta, renting cars, staying in partner hotels or through using Delta’s credit cards. They can also earn miles from everyday activities like eating out or shopping online.
✓ Amazon Prime Rewards
Amazon Prime Rewards provides its members free shipping on certain things, lets them watch videos and read books, listen to music and enjoy special deals. Members can collect points using the Amazon Prime Rewards Visa Signature Card every time they buy something. These points then turn into discounts for their next purchase or even travel tickets and gift cards.
✓ First National Bank’s eBucks Rewards
There is also an eBucks Reward from First National Bank. It's a reward system that pays back just for using your bank account and shopping regularly online or instore with certain brands. You could earn everyday cashback on selected brands which basically means getting some of the money you spent back into your account!
✓ Revolut Rewards
Revolut Rewards is another loyalty program option. With this plan you could earn back up to 10% of any purchase from favorite brands whenever using Revolut Shop. Also, added cashback will move into your eBucks account each month.
✓ American Express Membership Rewards
American Express Membership Rewards is a loyalty program, where you join and earn points. You can use these points to avail discounts on hotels, flights or even in renting cars. The program includes more than 7000 hotels all over the world.
✓ Marriott Bonvoy
Marriott Bonvoy loyalty program isn't simply about hotel rewards; it offers many up sides to its members. It spans more than 7,000 hotels around the world and allows members to get points during their stays. These points don't only convert into free nights but can also be used to get discounts on rooms and upgrades amongst other perks. Another feature is the different membership levels for those who stay over a certain number of nights annually. The members doing so will earn higher tiers, which will translate to better benefits.
✓ Starbucks Rewards
Starbucks offers Starbucks Rewards when you buy their items. The more cups of coffee or food items you pay for, the more Stars (points) build up in your account. You can use these Stars to get free drinks or food from any Starbucks store later. There's also a credit card called the Starbucks Rewards Visa that helps loyal customers earn extra benefits.
Challenges in Loyalty Program Management
