Recognising the Power of Incentives and Rewards in Banking: A Paradigm Shift in Customer Engagement

In an era where the financial services landscape is evolving at an unprecedented pace, the traditional roles of the bank is undergoing what, for the industry, would be considered a radical transformation. With Chase Bank’s recent foray into the realm of media platforms for advertisers, in addition to their existing successful CLO offering and their travel platform, the time for incentive and reward to take centre stage in the banking and financial services sector is now.

Chase's offering is understandable given the size of their audience (80m customers!), but their innovative approach and smart acquisitions also highlight the burgeoning significance of incentive and reward as a mechanism and driver of customer engagement & loyalty for the sector, and a strategic focus to go beyond the transaction, delivering much more than conventional banking services, to potentially become the next generation of super-app.?

The recent article by PYMNTS ?got me thinking about the intrinsic value that incentives and rewards bring to banks, their customers, and merchants alike, and the opportunity for European banks to look more closely at what Chase are doing and start to develop their own robust programs.?

Why is this important? With daily banking considered a loss leader for the majority (if not all) financial institutions, there are a multitude of reasons why building a compelling reward and incentive proposition should be a primary objective for the industry and here are my top 5 reasons why:?

1. Enhanced Customer Engagement

Deloitte’s recent 2024 banking and capital markets outlook outlined that organic growth for the sector will be modest, forcing institutions to “pursue new sources of value in a capital-scarce environment” and that “fortifying customer relationships and owning the “sticky” share of wallet” should be a priority for strategic planning. Incentives and rewards serve as tools for fostering deeper engagement, and with retail banking customers spoiled for choice these days, making it easier for them to switch accounts and spread their deposits across multiple institutions, there has to be a compelling reason for a customer to stay loyal. A recent piece by Accenture, found that “ while the majority of banks claim to be customer-centric, less than 15% actually reward customers for their holistic relationship with a bank”. By leveraging incentives and rewards, banks can cultivate long-term relationships with customers, driving loyalty and advocacy. According to the same Accenture study , they could also boost revenue from primary customers by up to 20%,?

2. Driving Financial Behaviour

Behavioural economics suggests that incentives play a pivotal role in shaping consumer behaviour. Whether it's incentivising savings, promoting responsible spending habits, or encouraging digital banking adoption, reward and incentive programs can serve as catalysts for positive financial behaviour change. Implementing subtle cues and incentives like nudging, and mental accounting, to offer rewards that are tied to certain financial activities helps build that emotional connection to the customer, and a level of trust and understanding that can further drive loyalty and engagement. It can also help drive revenue uplift and new product adoption, increase use of a bank’s digital assets, reducing contact centre ratios and improving operational efficiency by encouraging self-service.?

3. Strengthening Merchant Partnerships for the benefit of all?

The symbiotic relationship between banks and merchants is supported by incentive and reward programs. Merchants benefit from new customer acquisition, increased customer engagement and spending, driving more foot traffic into store or online and ultimately higher transaction volumes, as well as the enhanced brand visibility partnership can bring. For the banks, increased transaction volumes bring incremental revenue from the associated fees, while access to merchant data allows for a deeper understanding of their customer’s purchasing behaviour and preferences. There’s also the potential for generating revenue, with many merchant partnerships offering rich commercials for purchases made. For the customer, they enjoy discounts and offers on their purchases, and this mutual value exchange fosters a win-win scenario for everyone involved.?

4. Personalised Experiences

In today's hyper-connected world, consumers want personalised experiences, and have the expectation that their bank will be able to provide the same level of engaging, relevant, experience and recommendation that they get from Amazon or Netflix, both when it comes to customer service, and product recommendations. Accenture found that of those banks that do have a program in place, over 60% of banks offer limited rewards, mostly for credit card transactions, having products from two or more categories, or paying a monthly for your account. As a customer, I’m all too aware of the handful of static offers I receive from my banks that clearly aren’t personalised (Kids & baby offers for the 40 something child-free professional anyone?), and this lack of personalisation can actually turn customers off, impacting NPS and making them less likely to engage as they feel there isn’t the level of understanding. I know that I often wonder why, when my banks have so much information on where and how I spend my money that they can't at least serve up something I'm likely to use!

Having access to depth and breadth of content, and multiple reward mechanisms means a bank can offer a truly personalised experience with offers that will resonate with their customer, whether they be interested in specific merchant discounts, events, cinema tickets, digital downloads, or a free coffee. It also means they can segment their customers and look at driving behavioural outcomes with higher value rewards made available to customers who are higher value to the bank, and deliver an ability to cross-sell and up-sell relevant products based on personalisation. Bank of America is a good example of this - using customer intelligence to provide personalised collections of deposit and credit products. Its integrated loyalty program has also boosted customer satisfaction—it achieved a 99% retention rate and?doubled the number of products held by each customer participating in the scheme based on research analysis of ECB data by Accenture.?

5. Data-driven Insights

Incentive and reward programs generate a treasure trove of data for banks, offering invaluable insights into consumer spending patterns, behaviours, preferences, and sentiment and helping to build a view of the customer that allows for a deeper understanding, and the ability to segment based on a variety of metrics, including their value. Having a clear picture of the customer as an individual enables true personalisation and the ability to effectively up-sell and cross-sell their product portfolio. Not only that, it’s a way for banks to identify trends, anticipate customer needs and gives banks the ability to make data-driven decisions relating to product development, marketing campaigns and other customer engagement initiatives, delivering cost savings and driving operational efficiency.???

What Chase has built delivers value across the board, for their customers, the merchants and advertisers, and most importantly their customers, who will enjoy a wealth of personalised benefits and rewards designed with them in mind. How many other banks will follow suit? While they may not have the huge customer base of Chase, all signs point to a paradigm shift in the banking and financial industry—one that places a premium on customer-centricity, innovation, collaboration, and delivering real value.?

Can those banks who don’t have incentive and reward as a primary strategic objective in their planning cycle win the hearts and minds of their customers in the long term? I don’t think so.

For everyone who took the time to make it to this end of this piece, thank you (it's my first foray into article writing)! I'm keen to hear your thoughts on this and how it's shaping the future of banking.

Please share your insights and experiences in the comments section below.

#fintech #bankingrewards #customerengagement #customerexperience #valueexchange #loyalty #technology

References:?

• Deloitte Center for Financial Services: :2024 banking and capital markets outlook?
• Jess Murray @ Accenture: How banks can reimagine a winning loyalty strategy, August 2023
• Accenture: Banking Consumer Study: Reignite human connections, 2023
• Bain & Company: Customer Loyalty in Retail Banking: Global Edition 2023