Banking Loyalty: Challenges, trends and opportunities

This was a sponsored post by Aimia under the Master Report series.

Loyalty in the banking sector is typically driven through credit cards. According to a Statista study in 2016, there are approximately 1 billion credit cards in the USA, and as of 2017, 51% of Americans have 3 or more credit cards in their wallets. Additionally, the rise of fintech start-ups is threatening the share of wallet for even the largest of banks. The competition is real and intense! And, to differentiate themselves, banks need to center their offering on core customer needs and evaluate their loyalty strategy to draw synergies from these emerging start-ups.

Key challenges facing bank loyalty programmes

Loyalty programmes for banks are mostly focused on credit cards, for which the revenue comes from three key sources – the consumer card fee, interest fee and interchange fee. The revenue stream that credit card loyalty traditionally influences is the interchange fee income by driving increased credit card usage. However, the interchange rate is very low (0.5%-2% of the transaction value) and does not form a significant chunk of overall credit card revenues (the largest source being interest income), thus, reducing the overall impact of loyalty. Aside from the revenue, the funding allocated to a loyalty programme is also limited due to low margins on credit cards (3% or lower).

Additionally, with the recent introduction of a cap on the interchange rates in regions such as Europe and Australia, the revenue to the issuer banks and the subsequent programme funding have further reduced.

To combat this, some banks have taken drastic measures such as increasing card fees and lowering the rewards generosity, which has a detrimental effect on the overall customer experience.

From a customer’s perspective, many of the banks have similar non-differentiated credit card offerings, with similar give-back and benefits. As a result, customers’ choice of credit cards boils down to the difference in card fees offered by banks, encouraging a cherry picking mentality and a transactional relationship between banks and their customers.

Furthermore, with advancements in data and technology, customers increasingly expect instant gratification from the services. This has contributed to the emergence of fintech organizations across the banking value chain and is eroding the traditional banking revenue. According to Accenture’s 2016 Fintech report, almost 2%-3% of the bank revenues are at risk from fintech competition due to lower loan origination, net income and fewer customers acquired. The biggest disruption is happening in payments domain with non-banking players such as Grab, PayTM, Go- Jek, WhatsApp, Line, creating their own payment wallets for customers to transact instantaneously, from the convenience of their mobile, across a plethora of small to large merchants. This is posing a huge threat to banks’ relevance and share of wallet.

Current best practices in banking loyalty

The loyalty programmes that are performing better than the others, per Aimia performance benchmarks, have been leveraging one or more of the below mentioned best practices.

  1. Driving convenience through real-time redemption: Introducing a real-time “pay-with-points” rewards option opens the door to a friction-less redemption experience, as well as a plethora of reward choices for customers. Offering customers the option to offset points in real-time directly through mobile phones also helps banks encourage the usage of credit cards. U.S. Bancorp FlexPerks Card, US, is a leading example of growing brand recall by simplifying the redemption process. The bank’s customers can activate this feature and redeem their loyalty points during a purchase by replying to a text message from the bank. As of 2016, the bank experienced a 318% growth since the launch, including 4.6 redemptions per redeemer. Citibank in Southeast Asia has taken it a step further by allowing customers to redeem their points or miles for both domestic and overseas purchases. The bank has also partnered with Samsung to enable payment-with-points on Samsung Pay purchases across seven Southeast Asian countries.
  2. Focusing on digitalisation of banking activities: With the digital revolution, customers increasingly demand convenience, and hence, the traditional banking system is shifting towards a digitally driven holistic approach to craft a cohesive customer experience across channels. Offering instant peer-to-peer payments, authentication through biometric technologies, new account openings or filing loan applications online, etc, are some of the ways banks can deliver an easy and convenient experience as well as instant gratification to their customers. DBS Bank Singapore is a pioneer at digitalising the banking experience for its customers, right from opening a new deposit account to transferring funds in real-time through a QR code scan. Its mobile wallet, DBS PayLah!, is Singapore’s fastest growing mobile wallet with more than 785,000 users and processes more than 15,000 peer-to-peer transactions per day.
  3. Retaining customers through segment-focused mechanics: With non differentiated reward offerings, it is difficult for most banks to retain and engage customers. Identifying the focal customer segments and designing relevant loyalty mechanics around their preferences, banks can establish an emotional connection with customers and also introduce novelty in the otherwise “me-too” offerings. The BankAmeriDeals from Bank of America is a classic example of leveraging frequency-based mechanics to drive stickiness among value-conscious customers. Members can not only unlock up to 15% off on deals from their favourite merchants, but also earn “coins” for every deal unlocked, which rewards them with incremental cash back, based on the number of coins collected. During the initial two years (2012-2014), Bank of America served 1.5 billion offers to their 30 million online customers and 14 million mobile banking customers.
  4. Engaging members through experiential rewards: Partnering with cross-industry players to curate experiential benefits can help banks establish deeper emotional connections with their customers and make them feel special, thus, building brand ambassadorship. The American Express Centurion Black Card, an invite-only card, rewards its members with highly exclusive experiences and luxurious benefits, including complimentary top-tier hotel membership status (Starwood Gold, Hilton Diamond, IHG Platinum Elite, and more); platinum medallion status with Delta airlines; priority access to hundreds of airport lounges worldwide; and VIP event invites. According to the 2017 Credit Card Satisfaction Study by J.D. Power, American Express was ranked number one in overall customer satisfaction among all credit card providers in the US. However, marketers may note that specifically offering lounge access as an experiential benefit may not work well, as the customer feedback received suggests that since this benefit is offered by all the banks, it leads to overcrowding of lounges. Marketers must seek to innovate their partnerships so as to deliver more exclusive range of benefits to customers.
  5. Strengthening revenues via data monetisation: Banks have copious data on customer transactions and demographics, which they can monetise to generate additional revenue stream to support programme costs. The data can be distilled into unique customer insights and sold to external vendors. Mastercard, US, shared anonymised behaviour-based spend data about its customers with JetBlue airlines to help it increase engagement with customers flying Caribbean routes. The partnership helped JetBlue achieve an over 40% uplift in email conversion rates and double-digit growth in ticket size versus the control group.
  6. Delivering relevance and optimising cost through merchant-funded rewards: Banks are leveraging their multi-dimensional data insights to run targeted campaigns and reward offers on behalf of merchants, funded by the merchants themselves. CIMB Bank, Malaysia, has leveraged its credit card statements for merchant-funded offers. This approach helps merchants gain direct access to customers through an established channel and technology, while also enabling banks to deliver personalised offers at a minimum cost, thus, increasing engagement.

While the above best practices can help and have helped some banks perform better, these may not be enough to sustain differentiation in a competitive financial services sector. A futuristic banking organisation has to be centred on customer needs as well as their financial and non-financial digital ecosystem. Maximising value through internal and external assets, building trusted advisory and enabling instant access through technological innovations will be the key to success in the future.

Trends and opportunities for banking loyalty

  1. Maximising value and impact through pan-bank loyalty: A pan-bank loyalty programme, a strategic imperative, can help banks optimise loyalty funding through a shared cost model, as well as foster deeper customer relationships through richer insights from data consolidation. By integrating various product units such as credit cards, saving accounts, loans, forex, etc, banks can establish a more agile organisation for speedy solution delivery and create customer lock-in by making banking processes more rewarding. From Aimia’s experience, pan-bank programme members show a spend uplift of ~3x by accumulating rewards across their entire relationship with the bank. Aimia has helped Axis Bank India launch a pan-bank loyalty programme, EDGE, which allows members to earn points across all their banking activities that can be redeemed across multiple categories such as utilities, dining, beauty, travel and hospitality.
  2. Driving innovation by partnering with technology players: Accenture’s 2016 Fintech report states that banks can gain 3% to 5% in revenues by collaborating with fintechs through enhanced customer acquisition and lower cost of risk. Banks have a huge customer base, brand equity as well as the financial expertise, but tend to lack an agile architecture to support customer-centric technologies to keep pace with evolving digital needs. By partnering with fintech, banks can digitise and streamline their processes and stay relevant to their customers. Commerzbank, Germany, partnered with IDnow to allow its customers to verify their identity through video chat to trigger the new account opening process. This initiative helped it deliver convenience to customers, while also adhering to the European Union’s anti-money laundering legislation, which required them to verify the customer identity in person. As of 2017, 30% of new customers use IDnow to verify their identity.
  3. Deploying block-chain to enhance the process: The emerging block-chain technology could prove to be a panacea for banks and financial institutions owing to its decentralised, transparent and highly secure architecture. The technology can enable banks to run transactions more efficiently and securely, thus, increasing the cost-effectiveness of various banking services, including loyalty programmes. Per the Santander FinTech 2.0 report published in 2015, the distributed ledger technology can save banks infrastructure costs by about $15 to 20 billion per annum by 2022. The Royal Bank of Canada has leveraged block-chain technology to successfully reduce the time to process earn and rewards data from a previous eight weeks to near real-time, allowing members to redeem their points instantaneously at point-of-sale.
  4. Leveraging social media for a 360-degree customer view and better engagement: Banks have traditionally stayed away from social media owing to regulatory and compliance issues. However, if leveraged appropriately, social media can generate truckloads of customer life-stage and attitudinal insights, which when overlaid with a bank’s transactional data, can help develop a 360-degree view of customers. With these insights, banks can curate and deliver highly personalised segment-of-one financial solutions to their customers. Additionally, banks can leverage social listening to improve internal processes and engage customers better. Vantage Credit Union, US, successfully tracks customer conversations across online communities to derive insights to identify ways to improve the customer service. Additionally, it has eased the process to retrieve members’ account information such as balances, cleared cheques and money transfers by sending a direct message on Twitter.


For banks to stay relevant and sustainable in the future, they will need to buckle down and act by placing the customers needs and interests at the heart of their business and loyalty strategies. Setting up a loyalty ecosystem that rewards customers across their entire banking relationship, leveraging synergies from fintech players to enhancing the customer experience and establishing trusted relationships through a 360-degree view of customers, will prove to be the biggest differentiators in the long run.


This article is is written by Shrutika Gupta, consultant, loyalty strategy and consulting, Aimia, and Jane Ng, research analyst, consulting centre of excellence, Aimia.