Card Loyalty 2.0: What’s On the Horizon for Credit Unions
May 2, 2016
May 3, 2016
By Lou Grilli, Director of Payment Strategy with CSCU
Loyalty programs are undergoing changes on all fronts. American Express announced a new mobile app that will allow membership rewards to be used at the POS, presumably at a devalued exchange rate. Starbucks changed their long-standing rewards program by issuing “stars” based on dollar spend, rather than the number of transactions, causing some consternation among Frappuccino and Oprah Chai aficionados. The way credit and debit card issuers who offer loyalty programs view rewards is also coming under scrutiny.
Loyalty programs offered by issuers have existed since the 1980’s, with the primary goal to keep one issuer’s card at the “top of wallet” over other cards. Every time you reach in your wallet, you have a choice of which card to use for that transaction – your credit union wants you to choose their cards, and offering points per dollar spent, which can later be used to purchase gifts, travel, or in some cases, cash back, is the incentive offered to you to use their card.
However, mobile apps, Apple/Samsung/Android Pay, and online wallets, have radically changed the dynamics or staying “top of wallet”, since you no longer pull out your physical wallet and make a choice at the POS. Instead, you enter card credentials when you first set up your wallet, and the first card you load becomes the default. The incentive to stay “top of wallet” needs to change to incentive to stay “top of phone”, with the overall goal still the same – choose one issuer’s card over another when making a transaction.
Loyalty programs have always been about incenting consumer behavior. Credit unions need to rethink what behaviors they are trying to incent. For example, offering points for loading a card into Apple Pay is a start, but that doesn’t mean that the card is now the default. Offering bonus points for three transactions over $25 is a more assured way to cause the behavior change – hopefully the cardholder has made the credit union card the new default. Offering incentives to members to enroll and then use the credit unions card in Visa Checkout helps the member by simplifying the online purchase transaction, but also helps the issuer by reducing card-not-present fraud. And later in the year, when credit unions start to offer CU-branded wallets, reward incentives should then shift to incent behavior related to getting early adopters to use the digital wallet and use social media to spread the word.
All of this assumes that systems are in place to automatically generate rewards based on triggers such as spend from a wallet or card enrollment. Until the systems are in place, there may be some incremental work to review reports and generate rewards manually. But as the next generation of loyalty takes hold, reward systems will be retooled (if they haven’t already) to create the type of behavioral changes needed for the next generation of loyalty programs.
Posted in Industry Insight.