Revolutionizing Banking: Fintech’s Impact and the Compelling Need for Loyalty-Driven Rewards Programs

By Mark Jackson, Managing Director, Valuedynamx

Fintechs are setting a whole new standard in banking. As a result, many customers seeking the utmost value are migrating away from traditional banking institutions in favor of the customer-centric approach and new products and services offered by these disruptors. As consumers increasingly demand personalized and relevant experiences, there is a growing expectation for additional benefits in exchange for their loyalty. The message is clear: FIs must quickly adapt to growing consumer needs or risk being left behind.

Maintaining customer loyalty is more challenging than ever, given the ease and speed with which technology allows customers to switch accounts. In the UK alone, more than 113,000 customers switched their current bank account in the first half of 2023. This upward trend in customer turnover shows the importance of financial institutions exploring innovative approaches to increase customer engagement and retain their business. As a result, many FIs are investing in loyalty programs to enhance customer retention, foster engagement, build brand loyalty, and ultimately drive revenue growth across their organizations.

When executed well, a loyalty program can be a game-changing element for FIs looking to innovate. There are the four biggest benefits an FI can expect from their customer loyalty program:

1. Keeping Current Customers

While it’s a common understanding among most marketers that acquiring new customers is more expensive than retaining existing ones, it’s essential to remember that attracting and securing new customers often comes at a cost 5-7 times higher than keeping current customers.

Loyalty programs excel in keeping established customers engaged and less prone to switching to competitors. This success is attributed to the additional benefits, including rewards, discounts, and exclusive offers, which contribute to customers feeling valued and appreciated. Moreover, many programs enable customers to use their earned rewards as credits, enhancing their existing accounts through increased savings or reduced mortgage payments.

The sense of relevance and authenticity is further heightened when FIs incorporate personalization into their loyalty programs. This may include bonus perks tailored to birthdays or regular discounts and offers based on a customer’s most frequented store or frequently purchased products.

2. Enhancing Brand Devotion

Loyalty programs play a pivotal role in establishing a profound emotional bond with clients, nurturing a heightened sense of engagement and connection between customers and their bank. This, in turn, significantly enhances the likelihood of customers maintaining long-term loyalty.

While enhanced personalization stands out as a straightforward method to appeal to a customer’s emotions, additional techniques such as gamification and storytelling contribute to customers feeling not just valued but genuinely appreciated and recognized.

Taking it a step further, many banks and FIs leverage their loyalty programs to make impactful investments in local communities, charities, and other meaningful causes. Some innovative start-ups center their entire proposition around addressing social and environmental issues, like climate change and driving positive change.

In a world where customers prioritize positive social impact and environmental sustainability when selecting the brands they support, the knowledge that their bank actively contributes to such causes becomes a vital way to cultivate long-term trust and loyalty.

3. Providing Valuable Customer Insights

Effective loyalty programs rely on data as their essential foundation, providing a wealth of insights for deeper understanding and personalized engagement. This data-driven approach empowers banks to offer tailored rewards and additional benefits, reinforcing and enhancing customer relationships.

The insights derived from loyalty programs extend beyond the program itself, playing a crucial role in various business areas. From shaping future targeted marketing campaigns to informing product development strategies, the data collected proves invaluable in steering overall business initiatives.

Loyalty programs, by capturing behavioral and transactional data, enable FIs to categorize customers based on their preferences rather than mere demographic details. In a landscape where customer behaviors, preferences, and expectations are in constant flux, loyalty programs act as a dynamic tool, allowing brands to adapt by tracking everyday spend and activities. This flexibility enables brands to move customers seamlessly into new segments as their needs evolve over time.

Integrating these loyalty program insights with an open banking approach, where additional services from diverse brands are seamlessly incorporated into a bank’s offerings, equips FIs to personalize and market to customers based on a comprehensive understanding of their transaction profile. This holistic strategy ensures that customer engagement remains finely tuned to their evolving needs and preferences.

4. Increasing Revenue

Certainly, loyalty programs extend their advantages beyond the end customer, proving highly lucrative for the overall business. With each purchase, FIs gain a percentage return, contributing to expanded revenue streams.

Loyalty programs foster repeat purchases and create opportunities for cross-selling, amplifying revenue and profitability over time. The most effective loyalty programs grant customers access to a vast network of vendors and merchants across numerous industries, simplifying the application of loyalty rewards to everyday spending. This not only boosts customer engagement but also strategically places FIs at the forefront of the ongoing competition in the race for account or card preference.

As consumers continue to be selective with where they spend their money and bank, there is a pressing need for FIs to set themselves apart. Now, more than ever, is the opportune moment for these institutions to integrate a loyalty program into their marketing strategy, establishing a powerful tool to enhance customer engagement and loyalty.