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.

Mobile tap & go loyalty wallet - market research survey

I have just finished compiling the results of an early, exploratory on-line survey I ran recently here in Singapore, testing the market for a mobile tap & go startup project that I am working on. Then, bang, synchronicity! I just got an e-mail from Aite Group on a survey they recently did in a similar area.

My survey explores how customers deal with lots of retailer loyalty and discount cards, and the hassles of carrying around an increasing number of cards, while the Aite survey “provides insight into the demographics and attitudes of consumers who choose credit cards based on rewards programs, and sheds light on the other factors that drive consumers to select one card over another”. Basically, the difference in focus being retailers versus financial institutions.

Aite suggests that card issuers need to create a more convenient product for customers in which a single bank card can aggregate lots of different programs:

"It is clear that most rewards cardholders possess multiple rewards cards," says Ron Shevlin, senior analyst with Aite Group and author of this report. "As issuers look to one-up each other with ever-expanding rewards, Aite Group believes that there's an opportunity for issuers to differentiate themselves by creating a rewards hub that enables cardholders to aggregate and integrate programs."

I agree with the general premise of this advice, but I don’t believe that a financial institution can offer a truly convenient solution to the problem. Hence the work I have been involved in.

Want some of the results of my survey? It turns out that 70% of shoppers in Singapore have over 3 loyalty or discount cards, and 40% have over 5. Those tend to be almost exclusively women, almost 9 in 10. Men simply can’t carry around lots of cards in their wallets, unless they start carrying purses.

People with lots of cards are definitely interested in solutions to the fat wallet problem. 56% of these customers declared that they would be “very interested” in a mobile tap & go wallet that would let them register all of their loyalty cards on their mobile phones, so that they can just tap their phones when they shop instead of presenting their cards. In the future, I want to look at men’s behavior more specifically, to see if interest in joining lots of retailer loyalty and discount programs would go up substantially if fat wallets (and purses) are no longer needed.

Oh yeah, here’s an important piece of data: a huge 62% of loyal shoppers declared that they would be “very likely” to prefer shopping at a store that allows them to tap their phones, versus a similar store that requires card presentation. Retailers that make it easier to participate in their loyalty programs will clearly attract more customers. Some retailers will take this insight and try to create a mobile wallet that only supports that retailer’s loyalty card, which is already being talked about in Europe with some of the largest retailers. Those projects will ultimately fail because only the most loyal customers will dedicate their mobile phones to a single retailer. But hey, you know that some big retailers will absolutely have to spend lots of money trying to do that, right?

Aite is selling their survey for lots of money. Mine was done for my own use, but if you want to buy it let me know and I’ll dress it up a bit like the big analysts do and sell it to you real expensive. Just kidding! (Well sort of, contact me here if you’re interested in what I’m working on).