Customer Rewards Programs for Banking & Financial Institutions
POSTED : June 17, 2014

Banking customer engagement and objectives

The banking industry has changed dramatically over the past ten years, given the new regulatory environment, increasing competition from non-traditional players (credit unions, PayPal, Bitcoin), and a shift away from brick and mortar to mobile and online services. Customer engagement has changed, too, with greater expectations around mobile services and personalized experience.

The right banking rewards program can delight customers and influence behavior. This post will discuss important rewards program design considerations for loyalty marketers who must respond to industry challenges and optimize loyalty programs to:

1. Increase retention of current and future high-value customers, with attention to customer lifetime value

2. Promote cross-selling of banking products and services

3. Increase attitudinal loyalty with a customer base

Retention levers

Three primary retention levers are available to loyalty marketers:

  1. Perceived value
  2. Affinity
  3. Barriers to exit

Each of these levers presents varying levels of utility for influencing customer behavior based on the specific business and customer base to which they are applied. Rewards programs manipulate these levers to positively influence customer behavior.

For the banking industry, all of these levers offer some level of utility, but Perceived Value stands out as the most effective in influencing customer behavior and driving satisfaction. Much like insurance services, the highly transactional and competitive nature of banking results in bargain-hunting by customers. To hold onto customers, banks must increase customers’ Perceived Value — the sense that they receive fair, competitive rates, and financial benefits through their bank. Attempting to build an emotional connection (Affinity) with banking customers is tricky in an era of skepticism, and encumbered by the fact that service has become more automated and transactional. Implementing tactics that make it harder for customers to leave (Barriers to Exit) could backfire, as customers react to recent global events that characterize banks as controlling or greedy.

For these basic reasons, Perceived Value is the retention lever that offers the most utility to loyalty marketers in the Banking industry, and should inform the design and deployment of rewards programs.

Rewards earn models

Earn Models determine how customers earn value in the form of benefits, rewards, or currency—points, dollars, etc. The dynamics of how customers earn value will not only significantly impact their experience of the program, but implicitly help or hinder a marketer’s control over various retention levers. In addition to the impact on customer experience, Earn Models are also the primary driver of program costs. Understanding the different types of Earn Models, and the associated tradeoffs is imperative for the creation of successful programs that mitigate the risks of low customer engagement and costly operations.

The four primary Earn Models are:

  1. Membership
  2. Threshold
  3. Interval
  4. Stored Value

Most banks offer rewards programs for at least a portion of their products and services. These rewards commonly take the form of points that accumulate with debit or credit card transactions, allowing customers to save and redeem points for custom rewards or cash returns. Rewards often increase as customers increase account use or add new products and services to their portfolios. This basic structure is an example of the Stored Value Earn Model, one of the more complex but effective Earn Models for increasing customer retention.

The Stored Value Earn Model attributes value to program members over time, often for engaging in a variety of activities, and allows customers to retain and accrue value for future use. Typically, this model uses currency-like rewards points or dollars.

For banking, one advantage of the Stored Value Earn Model is that it provides the flexibility to incent multiple customer behaviors, thus enabling cross-selling. For instance, programs can accumulate points across banking products and services, encouraging a debit and credit card user to consider using the bank for other services like home and auto loans, investment portfolios, or financial advising. Key Bank’s Relationship Rewards program is a good example of a program offering points for activities and behavior beyond credit and debit card transactions; customers earn points for setting up recurring transfers, enrolling in online bill pay, and engaging in personal financial management.

Another benefit of the Stored Value Earn Model is that customers can choose how they spend points. This is advantageous because banks serve a broad customer base with diverse preferences. For example, customers of Citibank can save points and choose a reward from a broad catalog of travel, shopping, and investment catalogs. Taking the concept of personalized rewards one step further, Citibank even allows customers to “Make a Wish” and request a prize they would like that is not currently available on the rewards platform.

Additionally, the Stored Value Earn Model naturally rewards higher value customers who utilize multiple products and services, creating Barriers to Exit over time and optimizing cross-selling opportunities. Conversely, the Stored Value Earn Model prevents banks from over-investing in low-value customers; the model matches reward value to customer value.

Customer Rewards Programs for Banking & Financial Institutions

Key program design considerations

Loyalty marketers in the banking industry should consider the following market and customer dynamics to optimize rewards program design:

  1. Focus on customer lifetime value. High value customers for banks include affluent, middle-aged customers who use high margin bank products such as loans, mortgages, and investment services. The right rewards program design will target these customers, but must also gain the loyalty of younger customers with high future earning potential, and therefore high customer lifetime value. Returning value to high-value customers is easily justified and executed. The challenge is to find lower-cost, high-value rewards for lower-value customers with high future value.
  2. Gamify rewards to overcome customer fatigue. Gamifying rewards can set a rewards program apart and achieve a unique customer experience, and it works particularly well for a transactional business like banking. For instance, a bank could create a challenge around customer savings goals and gamify the process to engage customers in meeting self-generated objectives. An experience that goes beyond transactional rewards to help customers reach personal financial goals definitely increases Perceived Value, and may even create brand Affinity, an even more effective retention lever. offers prizes for points earned by making various positive financial decisions like adding money to a savings account or paying down debt. The same concept could be applied to a bank platform to increase customer engagement, increase positive behavior, and drive customer retention.
  3. Make the customer experience flawlessly consistent across platforms. High-value bank customers tend to be mobile and time-constrained, engaging with banks via many channels, including smartphones and tablets. Younger, future high-value customers engage with banks almost exclusively via online and mobile platforms. Today’s best rewards programs integrate rewards information across channels for a consistent customer experience. Emphasizing mobile and online platforms also increases touchpoint frequency and keeps the rewards program top of mind for the customer.

Given the changing and competitive industry landscape, the modern bank can benefit from the right rewards program. Effective program design can combat industry challenges to increase customer retention and promote cross-selling. Loyalty marketers should consider how the Stored Value Earn Model aligns with industry objectives, and incorporate creative program elements to increase Perceived Value, strive for Affinity, and gain the transactional and attitudinal loyalty of current and future high-value customers.

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