In an era where the financial services landscape is evolving at an unprecedented pace, the traditional roles of the bank are undergoing what, for the industry, would be considered a radical transformation. With Chase Bank’s recent foray into media platforms for advertisers, their existing successful CLO offering, and their travel platform, the time for incentive and reward to take center stage in the banking and financial services sector is now.
Intrinsic Value of Banking Rewards & Incentives
Chase’s offering is understandable, given the size of their audience (80 million customers!). Still, their innovative approach and intelligent acquisitions also highlight the burgeoning significance of incentive and reward as a mechanism and driver of customer engagement and loyalty for the sector and a strategic focus to go beyond the transaction, delivering much more than conventional banking services, to become the next generation of super-app potentially.
The recent article by PYMNTS got me thinking about the intrinsic value that incentives and rewards bring to banks, their customers, and merchants alike, as well as the opportunity for European banks to look more closely at what Chase is doing and start to develop their robust programs.
Why is this important? With daily banking considered a loss leader for the majority (if not all) financial institutions, there are many reasons why building a compelling reward and incentive proposition should be a primary objective for the industry.
5 Reasons to Focus on Rewards & Incentives
1. Enhanced Customer Engagement
Deloitte’s recent 2024 banking and capital markets outlook outlined that organic growth for the sector will be modest, forcing institutions to “pursue new sources of value in a capital-scarce environment” and that “fortifying customer relationships and owning the “sticky” share of wallet” should be a priority for strategic planning.
Incentives and rewards serve as tools for fostering deeper engagement. With retail banking customers spoiled for choice these days, making it easier for them to switch accounts and spread their deposits across multiple institutions, there has to be a compelling reason for a customer to stay loyal.
A recent piece by Accenture found that “while the majority of banks claim to be customer-centric, less than 15% reward customers for their holistic relationship with a bank.” Banks can cultivate long-term customer relationships by leveraging incentives and rewards, driving loyalty and advocacy. According to the same Accenture study, they could also boost revenue from primary customers by up to 20%.
2. Driving Financial Behaviour
Behavioral economics suggests that incentives play a pivotal role in shaping consumer behavior. Whether incentivizing savings, promoting responsible spending habits, or encouraging digital banking adoption, reward, and incentive programs can catalyze positive financial behavior change.
Implementing subtle cues and incentives like nudging and mental accounting to offer rewards tied to specific economic activities helps build that emotional connection to the customer and a level of trust and understanding that can further drive loyalty and engagement. It can also help drive revenue uplift and new product adoption, increase the use of a bank’s digital assets, reduce contact center ratios, and improve operational efficiency by encouraging self-service.
3. Strengthening Merchant Partnerships
Banks and merchants have a symbiotic relationship supported by incentive and reward programs. Merchants benefit from new customer acquisition, increased customer engagement and spending, driving more foot traffic into stores or online, ultimately higher transaction volumes, and the enhanced brand visibility that a partnership can bring.
For the banks, increased transaction volumes bring incremental revenue from the associated fees, while access to merchant data allows for a deeper understanding of their customer’s purchasing behavior and preferences. There’s also the potential for generating revenue, with many merchant partnerships offering rich purchase commercials. For the customer, they enjoy discounts and offers on their purchases, and this mutual value exchange fosters a win-win scenario for everyone involved.
4. Personalized Experiences
In today’s hyper-connected world, consumers want personalized experiences and expect that their bank will be able to provide the same level of engaging, relevant experience and recommendations they get from Amazon or Netflix regarding customer service and product recommendations. Accenture found that of those banks that do have a program in place, over 60% of banks offer limited rewards, primarily for credit card transactions, having products from two or more categories, or paying monthly for your account.
As a customer, I’m all too aware of the handful of static offers I receive from my banks that aren’t personalized (kids and baby offers for the 40-something child-free professional, anyone?). This lack of personalization can turn customers off, impacting NPS and making them less likely to engage as they feel there isn’t a level of understanding. I often wonder why, when my banks have so much information on where and how I spend my money, they can’t at least serve up something I’m likely to use!
Access to depth and breadth of content and multiple reward mechanisms means a bank can offer a truly personalized experience with offers that will resonate with their customer, whether they would be interested in specific merchant discounts, events, cinema tickets, digital downloads, or a free coffee. It also means they can segment their customers and look at driving behavioral outcomes with higher value rewards made available to customers of higher value to the bank, delivering an ability to cross-sell and up-sell relevant products based on personalization.
Bank of America is an excellent example of this by using customer intelligence to provide personalized collections of deposit and credit products. Its integrated loyalty program has also boosted customer satisfaction, achieving a 99% retention rate. It doubled the number of products held by each customer participating in the scheme based on research analysis of ECB data by Accenture.
5. Data-driven Insights
Incentive and reward programs generate a treasure trove of data for banks, offering invaluable insights into consumer spending patterns, behaviors, preferences, and sentiment and helping to build a view of the customer that allows for a deeper understanding and the ability to segment based on a variety of metrics, including their value. Having a clear picture of the customer as an individual enables true personalization and the ability to effectively up-sell and cross-sell their product portfolio.
Not only that, but it’s also a way for banks to identify trends and anticipate customer needs. It allows banks to make data-driven decisions about product development, marketing campaigns, and other customer engagement initiatives, delivering cost savings and driving operational efficiency.
The Future of Banking
What Chase has built delivers value across the board for their customers, merchants, advertisers, and most importantly, their customers, who will enjoy a wealth of personalized benefits and rewards designed with them in mind. How many other banks will follow suit? While they may not have the vast customer base of Chase, all signs point to a paradigm shift in the banking and financial industry that places a premium on customer-centricity, innovation, collaboration, and delivering real value.
Can those banks who don’t have incentive and reward as a primary strategic objective in their planning cycle win the hearts and minds of their customers in the long term? I don’t think so.
For everyone who took the time to make it to the end of this piece, thank you (it’s my first foray into article writing)! I’m keen to hear your thoughts on this and how it’s shaping the future of banking.