How Rewards Valuations Can Impact Cardholder Acquisition and Retention

By ampliFI Loyalty Solutions

Whether you actively monitor the loyalty space or just watch the evening news, you may have noticed several high-profile brands (like your favorite coffee chain or fast-food restaurant) experiencing consumer backlash over their loyalty programs. Rewards equate to a financial value, and this type of outcry is the result of perceived (or actual) negative changes in the valuation of the rewards units within these programs. Changes like the removal of low-cost redemption options, reduced point value, unintelligible funding rate changes, and similar are causing savvy consumers to speak out.

ampliFI Loyalty Solutions’ loyalty experts conduct ongoing reviews of the competitive landscape of card programs and in addition to the devaluation of rewards occurring in some programs, there is an emerging trend on the opposite side of the valuation spectrum. In the financial services industry, there are several financial institutions trending towards richer offerings in their loyalty programs, with 2x and 3x valuations beginning to become the norm. These rich offers are designed to recruit new cardholders and are sometimes also paired with higher earn rates in select categories, as well as special rates on APR and balance transfers.

Loyalty Programs Have Financial Impact

Consumer feedback and high-profile media attention illustrate how significant loyalty programs are in terms of business impact across all industries, including financial services. Consumers are attracted to loyalty programs for financial incentives, and their participation in the program drives engagement, improves cardholder retention, and drives repeat transactions, which ultimately translates into revenue and ROI. It also illustrates that loyalty program operators should tread carefully when considering structural changes to things like earn rates, point values, and redemption options as changes could be perceived negatively, creating the risk of negative feedback or cardholder attrition.

Studies by ampliFI Loyalty Solutions indicate households that are engaged and redeeming drive both incremental spend lift and higher retention, across both credit and debit cards. Many financial institutions have begun to understand the financial value of active loyalty consumers and are valuing their programs to attract new, high-value cardholders.  

Cardholder Acquisition and Retention

Loyalty programs are a powerful strategy that can be deployed to attract new cardholders, especially in a crowded vertical like the debit or credit card space.  According to a recent Bond Loyalty study, the loyalty program and the ability to earn better rewards is the top reason prospects choose a credit card. This study also indicates the loyalty program makes the member 78% more likely to remain with that brand, and loyalty to the program ranks higher than loyalty to the brand itself.

However, as many financial institutions design their loyalty programs, the most common disconnect between loyalty program providers and cardholders is personalization. 85% of consumers want more choice in the rewards they receive, yet only 22% are quoted as being very satisfied with the level of personalization delivered by their financial institution. Be the outlier. Engage with cardholders through the right channels, at the right place, at the right moment, with the right message.

Competitive Landscape

Understanding the competitive landscape and the value of your competitors’ offerings can help ensure your loyalty program is well-positioned to both retain and recruit cardholders. Banks and credit unions are getting more aggressive with the offers in their campaigns designed to recruit new cardholders, in particular, acquisition messaging often has APR and balance transfer specials on top of point earning opportunities. This trend correlates to recent Competiscan research on the YoY increase in credit card revolve revenue:

  • There was a 15% YoY increase in credit card balances from 2022 to 2023, the largest increase in more than 20 years, and there is a similar increase in acquisition-targeted campaigns which include APR and balance transfer specials on top points earned.

  • The percentage of acquisition mail for rewards cards is steadily increasing at 11% YoY, while mail for non-rewards cards has declined.

  • Despite recessionary pressure, YoY marketing volumes are increasing with households receiving 27% more direct mail.

Remember, someone else’s acquisition target is your current cardholder and possible attritor. A well-designed loyalty program will help retain and grow your cardholder community, but only if the cardholders are engaged with the value you provide.

Conduct a review of the trends in your industry and among your competitors so you don’t accidentally make an adjustment that causes your cardholders to devalue your program and start shopping for a more generous offer. For more information on loyalty programs and opportunities to enhance cardholder engagement, follow ampliFI Loyalty Solutions on LinkedIn.

Previous
Previous

Superior Credit Union Is a Top Mortgage Lender in Cincinnati, OH

Next
Next

MOVEit Transfer Web Application Vulnerability