​Optimizing Your Financial Brand's Rewards Portfolio

Developing a compelling rewards portfolio as part of their customer loyalty framework has long been a staple of financial institutions’ cardholder and member retention strategies. These strategies become crucial in a market with high customer attrition rates and fierce competition.  

Over half of banking customers have switched to different providers at some point in their lives, a trend further fueled by the rise of fintech companies and neo-banks, which attract customers with more cost-effective solutions. Industry data reveals that financial institutions typically experience a 15% annual customer turnover, and customer acquisition and retention economics compounds this. While new customers contribute an average of $150 in revenue, they cost about $200 to onboard. 

In a time when consumers are questioning the value of loyalty programs, implementing effective retention strategies becomes essential for businesses, especially financial institutions. The foundation of such strategies often lies in establishing a rewards-rich loyalty program designed to engage and incentivize customers and deepen their loyalty to the brand. This approach helps retain existing customers and plays a vital role in attracting new ones in a competitive market landscape. 

Bridging the Loyalty Gap and Engaging Customers 

Loyalty programs have traditionally been the financial industry’s first defense against customer switching. According to research, 70% of consumers state that rewards from financial institutions influence their decisions, including potentially whether to stay with that institution or switch to a competitor. 

Banks and credit unions offer highly similar products, so it’s not surprising that they often share identical loyalty program anatomies. However, the most successful financial institution loyalty program managers understand that they serve different audiences, have varying unique selling points, and differentiate themselves accordingly.  

Here are some key points that illustrate the divergence between banks and credit unions and hint at how each can structure their rewards portfolios to engage their members: 

Different customer segments: According to Ipsos, just 22% of Americans use credit unions. Moreover, the age demographic is very different, with the World Council of Credit Unions revealing that the average age of members is 53. Compare this to the median age of the U.S., which is 38 and trending downwards.  

Targeting the same customers: Credit unions and banks compete, their products overlap significantly, and they often fight for the same customers. 

Divergent stakeholders: Banks are accountable to their shareholders and Wall Street. Credit unions differentiate themselves by serving their members, which is why credit union account holders are “members,” not “customers.” 

Resources: Credit unions have traditionally operated with comparatively fewer financial resources than large national banks. There’s also been a sizable amalgamation of smaller credit unions over the last decade. Most credit unions previously focused on regional, not national, presence and new member acquisition.   

These differences mean banks and credit unions should consider how they can adjust their loyalty program structures to suit their needs and their audience.  

For example, credit unions have traditionally had an advantage in customer/member engagement. Seventy-three percent of credit union members feel their credit union cares for their financial well-being and classifies themselves as “engaged,” but this advantage is slipping. Since 2014, Gallup polls have revealed that credit union engagement ratings have consistently fallen, with the average fall being nearly 50% as of 2021. 

This trend highlights the need to implement new strategies to keep members engaged. Introducing a reimagined portfolio of rewards could be an effective strategy to tackle this concerning issue.   

Improving Your Rewards Portfolio in 2024 and Beyond 

What kind of rewards portfolio will be effective at boosting retention and engagement? There are some rewards with near-universal appeal - like travel rewards - but the best portfolios account for the unique makeup of their program’s member base. 

Take the average 53-year-old credit union member. As a member of Generation X, Response Media reports that 88% of Generation Xers join loyalty programs to save money. This implies that rewards that offer savings on everyday purchases would resonate with this demographic. But what if a loyalty program could provide rewards tailored to the individual member and not just their demographic? 

They can. Personalized rewards are powered by the data a loyalty program already has on its customers, tailoring the offers and options presented to members based on their preferences and past behaviors. And it works.  

A Mastercard study found that cardholders receiving personalized offers resulted in an 18% spending increase and a 75% churn reduction. Consumers agree: A recent iSeatz survey of more than 2,000 American loyalty program members, part of our Tipping Point for Loyalty series, found that 75% of consumers believe receiving more personalized offers helps them save more on travel. 

Innovating Loyalty Programs for Your Audience   

Loyalty programs’ success hinges on giving customers and members something they want. This applies to banks, credit unions, or a business in any other industry. Several core loyalty program characteristics can support financial institutions in elevating their loyalty programs, including:  

  • Personalized offers: Using the data and insights already generated by the loyalty program to present tailored offers to members is a crucial tactic for boosting redemptions, program interaction, and improving the perceived value of the program. 
  • Flexible rewards and redemptions: Give members more flexibility regarding how they can use their points – enabling them to redeem them for benefits beyond travel, such as cash, experiences, and lifestyle rewards. Our survey data affirm the appeal of lifestyle rewards–33% of U.S. consumers said they would like to see more personalized discounts for lifestyle rewards. 
  • Engagement: Customer engagement has never been more critical, and one approach that financial institutions can take to engage their customers is to tie rewards to things they care about. This could, for example, include rewards for local businesses or upcoming destination events.   

It’s easy to think about loyalty program innovation in terms of one structure versus another, but this is the wrong angle to examine it. Instead, the question banks and credit unions should be asking is, “How can we offer better rewards to engage our customers?” 

Partnerships are one way to augment your offerings quickly. At iSeatz, we partner with financial institutions to provide access to travel and lifestyle rewards for their loyalty program members. With various self-service tools to fine-tune your loyalty program, your brand can increase retention and value. 

To learn more about our work with financial services brands and their loyalty programs, contact us here. 

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