Advice to follow the customer toward moments, choices, and use cases
Visa is putting its full weight behind an initiative to ween banks away from credit card rewards to deliver more personalised loyalty offers.
“Rewards must be meaningful, contextual and delivered at the exact moment a consumer is ready to engage,” is the argument put forward by Avery Miller, VP of loyalty solutions at Visa.
What Miller is proposing has a logical starting point. It is no longer enough to offer points on credit card purchases. Not least because a great many consumers have moved payment methods, and no longer use a credit card anyway. They might not even use a card. At the same time, loyalty programs across the world are reducing their loyalty redemption offers, citing a difficult trading environment and falling profits.
Vlad Treves, founder & ecosystem architect, Spectrum350 explained the move succinctly in a recent LinkedIn post: “For years, loyalty has been optimized around card economics and post-transaction mechanics. That approach worked — until payments themselves became more fragmented, contextual, and behavior-driven.
“The real shift is not simply “embedding loyalty into payments”, but moving loyalty away from products and toward moments, choices, and use cases. When loyalty is tied only to a credit instrument, it inevitably excludes large parts of everyday payment behavior.
“What’s interesting now is seeing schemes openly recognize that future loyalty models will have to be more inclusive, merchant-driven, and context-aware — even if the implementation paths will differ widely across markets.”
Interchange
Historically, credit cards generated a margin, so rewards and marketing were designed to increase card spend. Miller from Visa said that the structure is still common across the industry, with larger financial institutions investing significantly more in those programs than smaller ones. The result has been a market where loyalty appears fundamentally similar across issuers giving little incentive to consumers to change behaviour.
But margin pressures on interchange and fees mean banks can no longer rely solely on card economics. “It becomes essential to find new funding sources,” Miller explained.
“Loyalty is more dynamic and more competitive than ever. Consumers are enthusiastic about rewards and will often sign up for programs immediately. But they are overwhelmed. On average, individuals are enrolled in 18 or more loyalty programs… but engaging in only about half of them.”
Miller says that this speaks volumes about the gap between the initial excitement of becoming a member and the follow-through in terms of actually using those programs.
A rethinking of loyalty as a strategy requires banks to craft programs that are personalized, relevant, and holistic to the total customer relationship; in other words, a departure from the one-size-fits-all model built solely around credit card spend.
Loyalty comment
This shift in focus from Visa will come as no surprise to those in the loyalty business who have been pushing for more personalised loyalty offering from the payment companies, and less emphasis on credit cards for years. But now that Visa, with its unsurpassed global network is singing the same tune, expect to see some interesting offers from banks. Perhaps.
There is a great deal at stake. Will this move unravel the long term relationship between banks and the travel industry? Or will it enhance customer loyalty? Banks and card companies have always been traditionalists. What changes have there been from Amex in terms of their card offerings for instance? Or any of the major banks for that matter? But consumers are changing behaviour, and the payments and loyalty industries would be advised to follow.