Dec 22, 2008

Crisis: much of the traditional thinking in rewards programmes will be useless

Banks have already substantially cut credit limits and it seems obvious that they should be giving out fewer cards than in the past, but you can’t really tell this with all the credit card marketing still happening in Singapore’s shopping districts. Will banks continue promoting card usage and credit consumption as the crisis grows, or will rewards programmes now focus much more heavily on other objectives?

In the past, banks targeted ‘revolving’ credit card customers as a key revenue driver. However, the credit crisis is reversing this process and banks are keen to boost their deposit base. This could create a new loyalty model where financial institutions reward consumers depending on the level of funds deposited with them, instead of encouraging more credit card usage. Some banks will likely dabble in this, but it will take a while for any type of mainstream development to come out of it.

Another impact of the crisis could be the final, total separation of card payments from other banking activities, where payment processing becomes even more of a third party activity, leaving card issuing and customer account management alone within the bank's walls. This would further highlight the imbalance of costs, where the majority of fees paid by merchants flow to the issuer and leave such a tiny amount with processors that no real merchant-centric innovation is currently possible. When was the last time you saw a meaningful R&D line on an acquirer or processor's P&L statement?

The December issue of Lafferty Cards Insider has an article on redefining rewards in today’s credit crisis.

“As the global financial crisis escalates, loyalty service providers are facing growing pressure to overhaul their rewards programmes by cutting costs wherever they can. Greater scrutiny of interchange fees is further intensifying the pace of change, which is likely to result in alternative funding strategies and an increased focus on retaining ‘good’ customers.”


A very interesting article.

In the meantime, I am putting more and more of my energy into my new loyalty related start-up project that helps retailers deal with the crisis better.

1 comment:

Janet Altman said...

Thanks again for another insightful article Aneace. To add further to the discussion, I believe that digital security is a major concern all the way around. With the recent massive credit card security breach, it's not only the banks that are holding back, but the consumers. Although I was hopeful after reading this site on digital security advances:
http://www.justaskgemalto.com.