Loyalty programs have emerged as one of the key marketing tools in the global retail banking industry. Retail banks offer a number of loyalty programs in developed economies, however many of these are commoditized. This has compelled banks to introduce innovative programs in order to remain both competitive and profitable. There is also an increased pressure on costs due to new regulatory trends introduced over the last five years. Loyalty programs are being viewed as an important revenue driving tool and have proven to reduce customer acquisition costs. Retail banking in emerging economies is still in its development stage, as illustrated by its relatively low loyalty program penetration rates.
Traditionally, banks and other card issuers have offered reward programs based on a customers’ income level and demographic profile. Banks are now segmenting customers based on their lifestyle choices and purchasing behavior. The use of analytical tools to better understand consumer spending patterns and offer personalized reward programs has increased in terms of adoption rates. This approach allows card issuers to launch customized rather than blanket programs to all customers. It also helps to target and isolate the most profitable customers and phase out the programs that do not offer significant value to a banks’ overall business. Moreover, analytics are enabling banks to provide location based, real time discounts in collaboration with merchants. The successful implementation of analytic based reward programs has become a key differentiating factor for banks.
In developed markets such as North America and Europe, governments have enacted a number of banking operation regulations. In developed markets such as North America and Europe, governments have enacted a number of banking operation regulations. In the US, the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) and the Durbin Amendment were both introduced. These regulations have added to compliance costs for credit and debit issuers due to stricter disclosure practices and a decline in interchange fees.
Target audience