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LOYALTY IN THE POST-INTERCHANGE ERA

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LOYALTY IN THE POST-INTERCHANGE ERA 1

By Mark Roper, Group Commercial Director at Collinson Group

Rising prosperity since the turn of the millennium has had a profound effect on the global economy, with consumption patterns beginning to signal that a new ‘normal’ may soon be upon us. We are all aware of the disparity between the 1 percent and the rest, but the real story has been the expanding middle class in Asia, Latin America, and Africa.Millions of consumers, flush with newly-acquired disposable income, will emerge in these regions over the coming decades – the OECD expects the global middle class to grow from 1.8 billion in 2009, to 3.2 in 2020, and reach 4.9 billion by 2030.

The values and outlook of these increasingly prosperous consumers are of particular interest to financial services providers of all kinds. The best place to look for clues about how best to engage with these consumers is towards the higher end of the earnings scale – a group known as the Mass Affluent. These consumers, within the top 10-15% of the income bracket for their countries,have considerable spending power and the potential to shapethe aspirations, buying habits and behaviour of other consumers. It is no surprise that many companies and financial services organisationslook to attract and retain this group’s custom.

Whilst brand cachet clearly plays a part in where this group of consumers decide to spend, much of the mass affluent’s loyaltyto financial services companies has been driven by rewards, whether through cashback on credit cards, travel incentives like air miles and airport lounge access, or discounts on products. Financial services providers have traditionally funded these rewards largely through the interchange fees levied on merchants. And with the European Union now mandating these fees are capped at 0.3% for credit cards and 0.2% for debit cards–a reduction of up to 1.85%–the future of these programmes is at risk. On March 1 of this year, Visa reduced its Debit Card fees, and on April 1, MasterCard began reducing fees on their credit cards, both with the aim of reaching the E.U. regulated levels by mid-2016.

These interchange reductions will affect the mass affluent to a greater extent, as the credit cards held by this group are more likely to have been on a premium interchange rate which largely funded their higher value rewards. As the interchange transition gets underway, now is the time for financial services companies to relook at their customerloyalty programmes and question how they can continue to acquire, engage with and retain customers at a time when the primary way of paying for these programmes is being reduced. Here at Collinson Group, we wanted toassistbusinessesin understandingthe behaviour and motivation of the mass affluent, which could then be used to inform how loyalty programmes in the low interchange era can be run. To achieve this first step in-depth research was carried out with 4,400 high earners from Brazil, China, India, Singapore, the UAE, US and UK.

Mark Roper

Mark Roper

Through this research, we identified four ‘tribes’ that share common traits which cut across age, gender and international boundaries. For too long, financial services companies have defined customers by income, spend or the products they buy. We believe these tribes provide additional valuable insight into the motivation and expectations of the world’s growing middle class, and will be especially useful for financial services providers:

  • Prudent Planners are the largest tribe representing 41 percent of respondents, most prevalent in the United Kingdom and United States. Three quarters of this tribe cite spending on family members as a priority and they have a higher than average interest in giving to charity and protecting the environment.
  • Stylish Spenders seek the finer things in life, and are most common in China and the United Arab Emirates. They arefour times more likely to buy leading brands and drive a luxury car than other affluent middle class consumers.Stylish Spenders are a small but very influential tribe with over half under 34 years of age and almost a third earning over $190,000 per annum.Interestingly, this group is the most loyal to brands they trust, participating in an average of five loyalty programmes and feeling loyal to up to eight brands.
  • Mid-Life Modernists stand out for their enthusiastic use of technology, with 61 percent citing gadgets as their biggest indulgence, 90 percent spending more than five hours a week using their smartphone and 45 percent spending over 20 hours a week online via a computer. They are well represented in India, China and Singapore, and as digital experiences have a significant influence on this group, businesses that invest in this area can create powerful advocates amongst them.
  • Experientialists value unique, money can’t buy experiences and exclusivity rather than standard products and services. Prevalent in China, the United Arab Emirates and the United Kingdom, this tribe is most likely to enjoy experiencing a different culture and using travel as a way of keeping in touch with friends and family. Experiences such as spending on holidays, dining out and luxury foods are also high priorities. Flexible rewards that include attainable travel redemption options and enriching lifestyle benefits are effective ways to tap into this group.

The mass affluent, increasingly aware of the worth of their custom, are also making additional demands on financial services providers. Rebuilding trust, destroyed by the global financial crisis, remains crucial as demonstrated by almost seven in ten expecting their bank to follow ethical practices.The pressure of delivering returns to the business has also never been higher, as financial services organisations struggle to contend with easier switching models, increased competition from agile new players, and more regulation than ever before.

In summary, it is simply too risky to stand still, and not offer valued, differentiated, personalised experiences and rewards, that start to move beyond the traditional transactional loyalty programmes. Providers need to get to the heart of what motivates a customer to join, spend and stay with them. This could be through‘Wow’ experiences, things that benefit the whole family, new technology or travel opportunities, and start to define a customer loyalty strategy that protects patronage and increases engagement.And by focusing on tailored offerings and customers’ motivations andaspirations,it is still possible to run effective loyalty programmes at an affordable cost to the business. This new approach will encourage the right behaviours and the long term loyalty and engagement of new and existing customers.

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Tech demand drives Asia’s factory revival, China’s slowdown puts dampener

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Tech demand drives Asia's factory revival, China's slowdown puts dampener 2

By Leika Kihara

TOKYO (Reuters) – Solid demand for technology goods drove extended growth in Asia’s factories in February, but a slowdown in China underscored the challenges facing the region as it seeks a sustainable recovery from the shattering COVID-19 pandemic blow.

The vaccine rollouts globally and pick-up in demand provided optimism for a vast number of businesses that had grappled for months with a cash-flow crunch and falling profits.

In Japan, manufacturing activity expanded at the fastest pace in over two years while South Korea’s exports rose for a fourth straight month in February, suggesting the region’s export-reliant economies were benefiting from robust global trade.

On the flip side, China’s factory activity grew at the slowest pace in nine months in February, hit by a domestic flare-up of COVID-19 and soft demand from countries under renewed lock-down measures.

“The big picture, supported by the latest figures, is that China’s growth remains fairly robust, but it is slowing from previously very rapid rates,” Mark Williams, chief Asia economist at Capital Economics, wrote in a note to clients.

China’s was the first major economy to lead the recovery from the COVID-19 shock, so any signs of prolonged cooling in Asia’s engine of growth will likely be a cause for concern.

With the global rebound still in early days, however, analysts say the outlook was brightening as companies increased output to restock inventory on hopes vaccine rollouts will normalise economic activity.

“The recovery in durable-goods demand is continuing, which is creating a positive cycle for manufacturers in Asia,” said Shigeto Nagai, head of Japan economics as Oxford Economics.

“As vaccine rollouts ease uncertainties over the outlook, capital expenditure will gradually pick up. That will benefit Japan, which is strong in exports of capital goods,” he said.

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 in February, the lowest level since last May but still above the 50-mark that separates growth from contraction.

That was in line with official manufacturing PMI that showed factory activity in the world’s second-largest economy expanded in February at the weakest pace since May last year.

Activity in other Asian giants remained brisk.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) jumped to 51.4 in February from the prior month’s 49.8 reading, marking the fastest expansion since December 2018, data showed on Monday.

In South Korea, a regional exports bellwether, shipments jumped 9.5% in February from a year earlier for its fourth straight month of increase on continued growth in memory chip and car sales.

The Philippines, Indonesia and Vietnam also saw manufacturing activity expand in February, a sign the region was gradually recovering from the initial hit of the pandemic. (This story corrects to add name of institution linked to analyst comment in paragraph 5)

(Reporting by Leika Kihara; Editing by Shri Navaratnam)

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China’s factory activity growth slips to nine-month low – Caixin PMI

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China's factory activity growth slips to nine-month low - Caixin PMI 3

BEIJING (Reuters) – China’s factory activity expanded at the slowest pace in nine months in February as weak overseas demand and coronavirus flare-ups weighed on output, adding pressure on the country’s labour market, a business survey showed on Monday.

The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery in China, although domestic COVID-19 cases have since been stamped out and analysts expect a strong rebound in full-year growth.

The results back an official survey released over the weekend showing China’s factory activity expanded at the weakest pace since last May.

February also saw the Lunar New Year holidays, when many workers return to their hometowns, although this year saw far fewer trips amid coronavirus fears.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 last month, the lowest level since last May.

Analysts polled by Reuters had expected the index to remain unchanged from January’s reading of 51.5. The 50-mark separates growth from contraction on a monthly basis.

“Overseas demand continued to drag down overall demand…Surveyed manufacturers highlighted fallout from domestic flare-ups of Covid-19 in the winter as well as the overseas pandemic,” said Wang Zhe, senior economist at Caixin Insight Group, in comments released alongside the data.

A sub-index for production fell to 51.9, the slowest pace of expansion since April last year, while another sub-index for new orders fell to 51.0, the lowest since May.

Export orders shrank for the second month. Factories laid off workers for the third month, and at a faster pace, with Wang noting “companies were not in a hurry to fill vacancies.”

An index of confidence in the year ahead rose however to 63.0, the highest since October. Input and output prices continued to rise albeit at a slower pace.

“Now the major challenge for policymakers will be maintaining the post-coronavirus recovery while paying close attention to inflation,” Wang added.

Analysts from HSBC this week forecast that China’s economy would grow 8.5% this year, leading the global recovery from the pandemic.

(Reporting By Gabriel Crossley; Editing by Ana Nicolaci)

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Oil prices climb after progress on huge U.S. stimulus bill

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Oil prices climb after progress on huge U.S. stimulus bill 4

By Jessica Jaganathan

SINGAPORE (Reuters) – Oil prices rose more than $1 on Monday on optimism in the global economy thanks to progress in a huge U.S. stimulus package and on hopes for improving oil demand as vaccines are rolled out.

Brent crude futures for May rose $1.07, or 1.7%, to $65.49 per barrel by 0042 GMT. The April contract expired on Friday.

U.S. West Texas Intermediate (WTI) crude futures jumped $1.10, or 1.8%, to $62.60 a barrel.

“Oil prices are recovering this morning in line with most risk assets on the back of the U.S. stimulus bill passing the House and as central banks continue to sabre rattle to ward off market-implied financial tightening,” Stephen Innes, chief global markets strategist at Axi, wrote in a note on Monday.

U.S. House of Representatives passed a $1.9 trillion coronavirus relief package early Saturday. Democrats who control the chamber approved the sweeping measure by a mostly party-line vote of 219 to 212 and sent it to the Senate, where Democrats planned a legislative manoeuvre to allow them to pass it without the support of Republicans.

More positive news on the coronavirus vaccination front and signs of an improving Asian economy also boosted prices.

A U.S. Centers for Disease Control and Prevention advisory panel voted unanimously on Sunday to recommend Johnson & Johnson’s COVID-19 shot for widespread use, and U.S. officials said initial shipments would start on Sunday.

J&J expects to ship more than 20 million doses by the end of March and 100 million by midyear, enough to vaccinate nearly a third of Americans.

Over in Japan, a private survey showed factory activity expanding at the fastest pace in over two years in February, adding to signs of a rebound in Asian growth.

On the flip side, investors are betting that this week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+, will result in more supply returning to the market.

“More supply needs to come onto the market to ensure OPEC+ meets incremental demand and keeps internal discipline ducks in a row,” Innes added.

(Reporting by Jessica Jaganathan; Editing by Shri Navaratnam)

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