Innovations in Payment Card Loyalty

Table of Contents

• INTRODUCTION
  • Who is the target reader?
  • Scope of the report
  • How to use this report
• AN INTRODUCTION TO PAYMENT CARD LOYALTY
  • What is a loyalty scheme?
    • Issuers must compete on price or service provision
      • Price leaders offer price incentives
      • Reward based loyalty schemes are used by premium service providers
  • There are four key objectives of a loyalty scheme
    • The primary objective is to attract new cardholders
    • The second aim is to retain these cardholders
      • Multi-retailer schemes offer even greater acquisition potential
    • Loyalty schemes aim to make their product the "card of choice"
      • Points-based schemes also reward the most active
    • The final objective is to increase customer spending data
• INNOVATIONS IN LOYALTY
  • Introduction
  • Rewards are being adapted to cardholders' preferences
    • Many issuers are offering increasingly exciting and innovative awards
    • Profile: The American Express Blue Sky card gives cardholders an unlimited choice of travel rewards
      • The program offers a favourable redemption rate
      • However, the value proposition is not as strong as some airline co-branded cards
      • The Blue Sky program is aimed towards the mass market
    • Some payment card loyalty schemes will exchange points to a different loyalty currency
    • Profile: The Royal Bank of Canada has an extensive loyalty program, with the option to transfer point to other loyalty programs
      • Redemption is online
      • The points are transferable to other loyalty programs
    • Rewards for charitable and environmentally conscious cardholders are becoming more common
    • Profile: Greencard offsets the cardholder' s carbon emissions
    • Well designed programs allow card holders to earn extra points in a range of situations
    • Profile: CitiBank' s "Thank You" loyalty program has a range of merchant partners and offers cardholders a range of innovative rewards
      • The program gives cardholders the opportunity to earn points by using different Citibank services
      • Additional points can be earned at a range of other merchants, greatly adding to cardholders' ability to earn points
      • Account management is from a dedicated website
      • Cardholders benefit from a large choice of rewards
      • Prepaid gift cards are a reward option
      • Citibank will create a reward for cardholders
      • The program promotes the Citibank brand in general
  • New methods in point redemption are being more introduced
    • The next step forward from quicker redemption via the internet is instant redemption
  • Some issuers are leveraging chip technology to allow instant redemption in their loyalty programs
    • Chips offer several advantages for loyalty over magnetic stripe
    • Chip technology facilitates instantaneous redemption at the point of interaction
      • Redemption at the POS is attractive to merchants too
    • Chip based programs allow issuers to develop a deeper relationship with cardholders
    • Profile: Garanti Bank offers cardholders a range of options on its chip-based Bonus Program
      • The chip allows for instant redemption
      • Garanti also have several non chip-based innovations
    • Profile: Mashreqbank' s WOW! Card rewards repeat purchases as opposed to transactional loyalty
      • The chip allows Mashreqbank and its partners to reward transaction freqency as well as value.
      • Other data stored on the chip can help further the relationship between the program and the partner
      • The value offered to the retailer is considerable
    • While this functionality is compelling, chip based systems are not ideal for all issuers
      • Despite the benefits, chip based programs are very much in the minority
• CONCLUSIONS AND KEY LEARNINGS
  • The secrets of a successful loyalty program
    • It should be remembered that reward programs are not the only way to create loyalty
      • Cardholders have different requirements
      • There is a trade off between price and reward program
      • Final thoughts on payment card loyalty
• APPENDIX
  • Definitions
    • Affinity card
    • Balances outstanding
    • Co-branded card
    • Credit card
    • Charge card
    • Debit card
    • PoS terminal
  • Research methodology
    • Cards and Payments database
  • Future readings
  • Datamonitor' s custom research capabilities
  • Cards & Payments Team contact details
  • List of Tables
    • Table 1: American Express' Blue Cash card offers a cash back rate dependent on the level of annual expenditure, 2007
    • Table 2: A selection of "Experience" type rewards on the Webmiles program, 2006
    • Table 3: Rates of tree replacement per type of expenditure on Greencard, 2006
    • Table 4: A representative sample of credit APRs and annual fees, UK, 2007
    • Table 5: Current relevant Datamonitor publications, 2007
    • Table 6: Future relevant Datamonitor publications, 2007
  • List of Figures
    • Figure 1: Three categories of reward based card loyalty schemes exist
    • Figure 2: The American Express Blue Sky Card
    • Figure 3: The Royal Bank of Canada has an extensive loyalty program
    • Figure 4: RBC and Esso points are exchangeable in both directions
    • Figure 5: The Greencard is attractive to those who care about the planet
    • Figure 6: Citibank' s "Thank You" program has a wide range of partners
    • Figure 7: Chips can store data specific to individual merchants as well
    • Figure 8: Chips can store personal information which can be used by merchants
    • Figure 9: The Garanti Bonus Card - Turkey
    • Figure 10: Garanti gives its partners access to detailed customer information via a website
    • Figure 11: The Mashreqbank WOW! Card UAE/Qatar
    • Figure 12: Chips allow merchants to encourage repeat business
    • Figure 13: Chips can bring together a range of offers to make a compelling customer loyalty offering
    • Figure 14: Datamonitor' s core consulting capabilities