Banks Move Away From Card-Based Transactions

An innovative reward program can differentiate a bank in a world where traditional rewards programs have become commodities, says Gwenn Bezard, a research director with Aite Group (Boston) and author of the 2006 report "Loyalty & Rewards: A Market Overview." Bezard predicts a shift away from card-based rewards programs and toward relationship-based programs, in which customers gain rewards based on the depth of their relationships with their banks.

"Rewards [are] a paramount competitive force in financial services," Bezard says. "The reward industry is shifting from pushing one-size-fits-all rewards to delivering highly personalized rewards through advanced segmentation."

Some banks already have picked up on the relationship-rewards concept. New York-based Citibank's ($816 billion in assets) ThankYou Network, which was unveiled in April 2005 and has 1.9 million active users, rewards customers based on a combination of their checking account package and the total number of products and services they have with the bank. They also earn points based on their debit card purchases. The 400,000 participants in Cleveland-based National City Bank's ($136 billion in assets) Points program, launched in March 2006, earn points based on numerous types of transactions and new service/product enrollment.

As a result of the increased interest in rewards programs, U.S. financial institutions' spending on rewards program redemption and management (including technology) will grow to $18.4 billion by 2010, up from $10.3 billion in 2006 (see chart), according to the Aite report, which is based on interviews with more than 50 decision makers at financial institutions, merchants and technology vendors. Key technologies behind rewards programs include data warehousing and software analytics for customer segmentation, Bezard says, as well as processing platforms to collect points and various channel interfaces through which consumers can check their points.

Hoping to capitalize on the trend, MasterCard Worldwide (Purchase, N.Y.) unveiled a new program that it says "empowers banks to better leverage customer relationships and increase customer loyalty based on the entire banking relationship." The technology behind the program is a proprietary, server-based platform called MasterCard Rewards, according to Chris Van Steenberg, VP, MasterCard.

The program is "not an exercise in integration," Van Steenberg says; rather, it relies on data transmission. If a bank has an existing relationship with MasterCard, data transmission for the rewards program can ride those existing rails, he notes.