Loyalty Management – Standardizing Multi-Party Interactions in a Banking Ecosystem

If we asked a hundred people to name the services they associate with loyalty programs, chances are, most would name airlines, retail, hospitality, or even car rentals. Some would name credit cards and virtually none would name banks as a service sector that they associate with loyalty programs. Yet as the business of banking gets increasingly challenging, financial institutions cannot really afford to continue operating with lackluster and irrelevant rewards programs. How then, can modern banks revamp loyalty strategies and manage multi-party loyalty programs to better engage with customers? In this session on “Multi-party Loyalty Management” at the BIAN Global Summit 2021, I’ve answered these pertinent questions.

The New Push for Customer Loyalty

Up until recently, banks did not have to worry about loyalty. Customers maintained accounts with one or two banks at best, and banking relationships usually were for life – quite often based completely on the proximity of a brick-and-mortar branch. They did not have much choice in the matter as there were no non-banking options available to them. The situation is significantly different today with the emergence of fintechs and technology giants and changing customer expectations. Customers today want uberized, digital, hyper-personalized, and relevant services and products from financial services providers and are not afraid to switch from one to the other if dissatisfied. In 2020, 22 percent of the banking population in the USA – as many as 44 million Americans-considered moving from their old banks to a new primary financial institution.1 And as more digital native millennials enter the formal banking economy, the fight for long term share of wallet will only get tougher. A solid base of loyal customers is essential for banks under these circumstances.

Existing Banking Loyalty Programs – Irrelevant and Ineffective

Unfortunately, existing loyalty and rewards programs are not very effective. Almost USD 100 billion worth of loyalty points go unused every year.2 Evidently, there is a deep mismatch between what banks offer in terms of rewards and what customers want. Most loyalty programs are product-centric and not customer-centric. Most banks today have programs built around their credit card business, but the rewards offered are not personalized and the program is not extended to other parts of the business. As a result, customers often find them to be irrelevant or not useful and never redeem them. As banking increasingly transitions into a customer-centric model, they must consciously extend the same to loyalty and rewards programs as well.

Customers also find it difficult to redeem points as banks work with a small, closed network of partners. Limited options to earn and redeem points coupled with the lack of options to redeem points in real time make existing programs unattractive and unusable for most. And in the absence of mechanisms to measure the direct correlation between loyalty and profitability, banks too lack the motivation to implement real change in their loyalty programs.

Banking Loyalty 2.0

At this juncture, banks must completely overhaul their loyalty programs and implement customer-centric strategies. Such a new revamped program must be pervasive, seamless, contextual, and truly rewarding for the customer. This can only happen if banks and non-banking partners come together to create an open, inter-operable, multi-partner ecosystem. Standardized APIs will facilitate easy partner integration. In this ecosystem loyalty points will be akin to digital currency – easy to use, easy to redeem across a wide network of partners. Points rewarded by the bank must be redeemable in real time and must be relevant for the customer and they must be recognized by partners across multiple ecosystems. For instance, a banking customer must be able to seamlessly change their bank rewards into air miles, only then will they see value in banking loyalty programs and engage with the bank on a long-term basis.

Support for Multi-party Loyalty Ecosystems

As financial institutions accelerate transformation for their loyalty programs, here are three key areas to help banks transform loyalty and rewards programs in a multi-party ecosystem. First, they must establish standardized norms for multi-party interactions within the ecosystem. This includes the program owner, earnings partners, redemption partners, aggregators, and customers. Second, they must enable an inter-operable framework opportunity similar to a distributed ledger that can facilitate seamless, secure and trusted transactions between various parties in an open partner ecosystem for rewards. Finally, this is an opportunity for industry bodies like BIAN for to define standards and bring in more non-banking parties into the loyalty partner ecosystem.

The larger banking sector is moving to customer-centric, value-driven models and loyalty programs cannot be left behind in this transformation drive. While banks still enjoy considerable customer trust and loyalty, they cannot take it for granted given the disruptive and competitive market scenario they operate in. As banks look to becoming orchestrators of a customer-centric ecosystem, they must also extend the same strategy to their loyalty programs and industry bodies like BIAN have a crucial role to play in this.

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