Why your loyalty program may need a revamp

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Traditional loyalty program benefits like travel and dining out don’t seem so appealing in the era of COVID-19. Some community banks are rethinking the kinds of rewards that will convince customers to stick around.

By Karen Epper Hoffman

Loyalty programs have been a staple of many community banks’ customer offering for decades. But with the ongoing COVID-19 pandemic having an impact on both customers’ finances and on traditional rewards such as travel and dining out, some banks are rethinking their rewards programs.

“When times are hard, even if it’s a small amount of interest earned or a couple of dollars on an ATM surcharge refunded, it can add up over time.”
—Johnny C. Branch, All America Bank

Johnny C. Branch, executive vice president at $465 million-asset All America Bank in Oklahoma City, Okla., and branch manager for Redneck Bank, its online subsidiary, says when people are looking for a product or service, “they are always looking to see what’s in it for them, and when economic times are hard, you have to consider options a little closer to see what added benefit you can get.” All America Bank’s rewards program gives customers additional interest and ATM surcharge refunds.

“When times are hard, even if it’s a small amount of interest earned or a couple of dollars on an ATM surcharge refunded, it can add up over time,” Branch says. “With [so much] uncertainty with the current economic environment, people are more hesitant to make changes that are not needed, and often changing banks can be seen as an unnecessary change.” A loyalty program can help seal the deal.

COVID-19’s impact on rewards

Even in the good times, loyalty programs can be costly to administer. With economic activity slowed, financial institutions must consider the payoff of these programs and how to make them more efficient.

What rewards do bank customers want now?

  • Streaming services
  • Household goods
  • Groceries or food delivery
  • Store gift cards (e.g., Target, Home Depot)

David Shipper, senior research analyst for debit, credit and prepaid at Boston-based Aite Group, believes rewards programs still prove to be profitable, especially on a per-transaction basis. In the wake of COVID-19, many card issuers are shifting rewards from gas and travel to groceries and food delivery as a way to encourage card usage. “There will be a new normal, and banks need to pay attention to what’s going on in the market and adjust their rewards program accordingly,” he adds.

Card loyalty programs are challenged right now, as so many of them are focused on travel and dining, says William N. Callender, partner and Americas financial services practice leader at New York City-based consultancy Kearney. Buy-now-pay-later programs represent a useful and timely alternative for banks, given consumers’ financial preferences, he adds

Callender says he’s seeing more banks creating loyalty programs focused on “opportunities beyond cards, like deposits and services, and on programs that reward for managing financial wellness, not just business volume.”

Encouraging customers to use their loyalty programs also boosts fraud prevention. Tina Giorgio, president and CEO of ICBA Bancard, says nearly half of all rewards accounts are inactive. Consumers also don’t think of their rewards as having actual cash value, so they don’t see themselves as victims of fraud if their points are stolen.

“There are billions of rewards points available for purchase on the dark web totaling more than $50 million,” she says. “And with the decline in travel, those points are sitting inactive. Encouraging clients to remain active by adjusting your redemption programs to items like streaming services and household goods could re-engage your customers.”

A benefit customers count on

When the world seems bleak, getting a little something for their commitment is not just a welcome benefit but increasingly one that consumers count on. “Loyalty programs are everywhere and are becoming an expected component of relationships between the consumer and a business,” says Doug Brown, senior vice president and general manager of NCR digital banking at NCR Corp. in Atlanta.

“The biggest advantage that financial institutions have is the amount of data that they are able to collect about their users,” he adds, “allowing them to provide personalized loyalty programs.” He also points out that, during economic downturns, this data is important in helping community banks provide assistance via these programs to those who may need it.

Tying rewards to digital usage could also nudge branch-based customers to embrace online and mobile channels, creating a long-term cost savings for banks. Malcolm Cohron, national digital transformation services leader at BDO Digital, headquartered in Chicago, says that “competition for new customers is fierce, and banks that lack mature digital offerings will be at a disadvantage. That could force those financial institutions that lack mature digital capabilities to offer more attractive incentives to new customers, in order to compensate.”

Community banks can reduce costs by improving and streamlining touchpoints and interactions with local customers, according to Christian Murray, executive vice president for prepaid card services at JNR Incorporated in Irvine, Calif.

He adds: “Bank loyalty programs continue to deliver value and loyalty to their customer base even under today’s downturn of consumer spending and up against the evolving hindrances of the COVID pandemic.”

Karen Epper Hoffman is a writer in Washington state.