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The Definitive Guide to Loyalty Programs

  • Exclusive tips and insights to take your loyalty marketing to the next level.
  • How to increase brand loyalty through careful planning and strategy?
  • How can Voucherify help you get started with loyalty marketing?
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How to Create an Effective Bank Loyalty Program in 2024?
Anna Dawal
Anna Dawal
January 4, 2024
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How to Create an Effective Bank Loyalty Program in 2024?

Throughout history, the banking industry has successfully weathered numerous challenges, including global financial crises. However, in an ever-evolving world where inflation rates fluctuate, a global pandemic reshapes our lives, and digitalization sweeps across industries, the banking landscape finds itself at a pivotal crossroads. 

As financial institutions strive to adapt to these dynamic circumstances, the importance of a loyalty program cannot be overstated. Today, more than ever, customers seek meaningful connections with their banks.

In this blog post, I will explore how banks and other financial services can create a powerful and effective loyalty program in 2024

  • What are the challenges for the banking sector in terms of customer loyalty?
  • What are financial services loyalty programs and how do they work?
  • What are the benefits of implementing such programs at financial institutions?
  • What are the types of loyalty programs in the financial services sector, and what can you reward customers with?
  • How to create bank loyalty programs suited to the needs of your customers?

{{The Definitive Guide to Loyalty Programs}}

What are the biggest challenges to customer retention in financial services?

The Covid-19 crisis was as a turning point for fintech adoption with an impressive 73% increase in interaction with fintech apps. New market challengers, such as Revolut successfully disrupted the way banking is done an captured the mind of digital-savvy customers.

Traditional banks are now under significant pressure to keep pace with the new market reality and minimize customer attrition.

Voucherify: common challenges to customer retention in the financial industry

Plenty of customers view banking as a transactional relationship rather than an ongoing engagement. Consequently, banks face several challenges in terms of deepening loyalty and fostering customer retention:

  • Intense competition: Banks operate in a highly competitive landscape, with numerous financial institutions vying for customers. This competition can make it challenging to attract and retain customers, as they have a wide range of options to choose from.
  • Evolving customer expectations: Existing customers' expectations are constantly evolving, driven by advancements in technology and changes in consumer behavior. Banks must keep up with these evolving expectations to deliver seamless digital experiences, personalized services, and convenient banking solutions.
  • Increased customer churn: With the ease of switching banks and the availability of online comparison platforms, customers are more willing to switch their banking provider if they feel dissatisfied or find a better offer elsewhere. Banks must focus on building strong relationships and providing value-added services to reduce customer churn and promote customer satisfaction.
  • Data analytics and personalization: Financial institutions can access vast amounts of customer data, but leveraging it effectively for personalized marketing can be challenging. Banks must invest in data analytics capabilities to gain actionable insights and deliver targeted and personalized marketing messages to their customers.
  • Regulatory compliance: The banking industry is subject to strict regulations concerning marketing practices to ensure consumer protection. Financial institutions must navigate these regulations while still effectively promoting their services, which requires a thorough understanding of compliance requirements and close coordination between marketing and legal teams.

Learn more: Must-Have Terms and Conditions for Loyalty Programs in 2023

Addressing these challenges requires banks to be proactive in understanding customer needs, leveraging data analytics, and embracing digital transformation. One way to start building long-term customer relationships is by establishing a bank loyalty program.

What is a bank loyalty program?

A bank loyalty program is a marketing strategy employed by the banking industry to incentivize customer loyalty and reward valued clients for their ongoing business and engagement with the bank. These programs are designed to encourage customers to continue using the bank's products and services and often offer various benefits and preferred rewards in return.

What are the benefits of implementing financial services loyalty programs?

1. Enhanced customer engagement and retention

Implementing a loyalty banking program enhances customer engagement by creating a sense of exclusivity and rewarding customers for their loyalty. By offering incentives, rewards, and personalized experiences, banks can foster a stronger emotional connection with customers, increasing their likelihood of staying with them and engaging in additional banking activities. This, in turn, boosts customer retention rates and strengthens the overall relationship between the bank and its customers.

2. Increased customer satisfaction and loyalty

A well-designed loyalty banking program has the potential to significantly increase customer engagement. By offering tangible rewards, personalized offers, and exceptional customer experiences, banks can demonstrate their commitment to their customers' financial well-being. 

According to Semrush Blog, as much as 89% of companies state that “exceptional customer service” is crucial in terms of customer retention. Consequently, satisfied customers are more likely to remain loyal to the bank, advocate for its services, and potentially consolidate more of their financial activities with the institution, leading to long-term profitability for the bank.

3. Competitive advantage in the banking industry

A compelling loyalty program can differentiate the bank from its competitors and, consequently, attract new customers and retain existing ones. By offering unique and valuable rewards, banks can stand out in the market and create a positive brand image. A well-executed loyalty program can position the bank as a preferred choice for customers seeking personalized and rewarding banking experiences.

4. Personalized offers

According to a Mastercard study, when cardholders receive personalized promotional offers, the reward redemption rises by 18%, and customer churn is reduced by 75%

Therefore, one of the key benefits of bank rewards programs is the ability to offer tailored offers to customers. By leveraging customer data and insights, banks can personalize their offers and rewards to match individual customer preferences, needs, and financial goals. This personalized approach enhances the customer experience, making customers feel valued and understood, which, in consequence, leads to higher consumer satisfaction and loyalty. 

What types of customer loyalty programs can you run in banking and fintech?

1. Point-based loyalty programs

Point-based programs are a popular loyalty program format in banking. Customers collect loyalty points based on their banking activities, such as account balances, transactions, or credit card usage. These points can then be redeemed for various rewards, including merchandise, gift cards, travel, or even cashback.

Chase Bank runs a point-based rewards program, Chase Ultimate Rewards, where customers can collect points on eligible purchases made with a Chase credit card. 

The collected points, among other things, can then be used to:

  • Pay for all or part of eligible Amazon.com orders or check out with PayPal.
  • Pay for all or part of all Apple purchases.
  • Pay for takeout reservations or cover travel expenses.
  • Shop over 175 favorite gift card brands.
  • Receive a statement credit or a direct deposit into most U.S. checking and saving accounts.
Chase Ultimate Rewards: a reward program which helps engage customers

2. Tiered loyalty programs

Tiered loyalty programs offer different levels or tiers of benefits based on customer loyalty or spending levels. As customers move up the tiers, they unlock additional privileges and rewards. Higher tiers often come with exclusive perks such as priority customer service, preferential interest rates, or access to exclusive events.

An American multinational financial services corporation, American Express, offers their customers the possibility to participate in Membership Rewards tiered loyalty program. The program is generally subscription-based: account holders pay a particular amount in order to find themselves in a given tier or can pay with points collected on their Corporate Card.

Each of the tiers has a separate membership fee (or Corporate Card number of points necessary to join) and, accordingly, offers different rewards for the customers. Among the rewards offered to American Express bank account holders are: point redemption for travel expenses, gift card purchases, credits at various stores, statement credits, and more.

Membership Rewards: bank loyalty increased with a tiered loyalty solution

3. Cashback loyalty programs

Cashback loyalty programs provide customers with a percentage of their purchases as cash credit rewards. This encourages spending while providing customers with a tangible benefit. Additionally, with the rise of Buy Now Pay Later services, banks can incorporate cashback programs into these payment options, further enhancing customer loyalty.

Bank of America offers the Cash Rewards program. Bank account holders can earn cashback on eligible purchases made with their Bank of America credit card. The cashback can then be redeemed as a statement credit or deposited directly into a Bank of America account.

The rules for earning cash back are as follows:

  • 3% cash back in the category of the customer's choice: gas, online shopping, dining, travel, drug stores, or home improvement/furnishings.
  • 2% cash back at grocery stores and wholesale clubs.
  • 1% cash back on all other purchases.

Credit card users will earn 3% and 2% cash back on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, then earn 1%.

Cash Rewards: one of the bank loyalty programs which create lifelong relationships

4. Exclusive privileges and perks

Loyalty programs in banking can offer exclusive privileges and perks to their members. These may include access to airport lounges, concierge services, discounted or waived fees, preferential loan rates, or personalized financial advice. By providing these exclusive benefits, banks can create a sense of exclusivity and cater to their customers' unique needs.

UK's Barclays Bank offers a Premier Rewards loyalty program for its premier banking customers. This program provides benefits such as worldwide airport lounge access, travel insurance, lifestyle rewards, tech gadgets within the Tech Pack, and exclusive event invitations.

Premier Rewards: one of bank loyalty programs which allows to pay bills online

5. Coalition loyalty programs

Coalition loyalty programs involve partnering with other businesses to offer a wider range of rewards and benefits. Customers can earn points and redeem rewards across multiple participating partners. This type of program increases the earning and redemption opportunities for customers and expands the reach and attractiveness of the loyalty program.

Nectar is a widely recognized coalition loyalty program in the United Kingdom. While it is not exclusively tied to banks, several banks participate in the program, allowing customers to earn Nectar points on their purchases. Some of the participating banks include Sainsbury's Bank, American Express, and Lloyds Bank. Nectar points can be redeemed for various rewards, including travel, shopping vouchers, and discounts at partner merchants.

Nectar: one of customer loyalty programs which connects financial services

Another example of a highly-regarded coalition loyalty program in fintech is Revolut Rewards. Revolut has consistently delivered on its promise of being the one app for all things money. With an impressive customer base of over 18 million personal users and 500,000 business users worldwide, Revolut has achieved "unicorn" status and undeniable success. 

Their fintech customer loyalty program offers a vast range of partner discounts and instant cashbacks.

Revolut Rewards – example of a coalition fintech loyalty program

6. Digital wallets

With the rise of digitalization, integrating loyalty programs into digital wallets has become increasingly popular. Customers can earn and redeem rewards seamlessly through their mobile banking apps or digital wallets, making the loyalty experience more convenient and accessible. This integration enhances the overall customer experience and encourages engagement with the loyalty program.

Learn more: What are digital coupon wallets?

Citi Bank's ThankYou Rewards program enables customers to earn points on their eligible Citi credit card transactions, including those made via digital wallets like Apple Pay, Google Pay, and Samsung Pay. These points can be redeemed for various rewards, including travel, merchandise, and statement credits.

ThankYou Rewards: increase bank loyalty with the usage of digital wallets

Now that we are already familiar with the types of bank loyalty programs, let's see what sorts of rewards you can incentivize customers with.

What rewards can you offer within financial services loyalty programs?

Loyalty programs in the financial sector can offer a variety of incentives to encourage customer loyalty by providing offers that, for instance, help customers to pay off their mortgage or lower their interest rates.

Here are some common incentives that banks may offer within their loyalty programs:

  • Loyalty points: Bank customers can earn points based on their banking activities, such as maintaining certain account balances, making transactions, or using specific banking products. These points can be accumulated and redeemed for various rewards, such as direct cash rewards, gift cards, travel vouchers, merchandise, or discounts on banking fees.
  • Cash rewards: Customers may receive a percentage of their spending or account balances as cashback, providing them with tangible monetary benefits for their loyalty.
  • Interest rate boosts: Members of financial services loyalty programs may enjoy higher interest rates on their savings accounts or deposits compared to regular customers. This encourages customers to keep their funds within the bank and reinforces the value of their loyalty.
  • Fee waivers: Loyalty program members may have certain banking fees waived or reduced. This can include transaction fees, unlimited free ATM transactions, account maintenance fees, or annual credit card fees.
  • Loan discounts: Banks may offer discounted interest rates or reduced fees on loans, including personal loans, mortgages, or car loans, as an exclusive benefit for loyalty program members.
  • Enhanced customer service: Loyalty program members may receive priority customer service, ensuring faster response times, dedicated support lines, or access to specialized customer service representatives. This personalized attention can enhance the customer experience and provide an added incentive for loyalty.
  • Exclusive products or services: Banks may offer loyalty program members access to exclusive banking products or services. This can include high-yield savings accounts, premium credit cards with additional benefits, priority credit service, personalized financial planning services, or exclusive investment opportunities.
  • Partner discounts: Loyalty programs may establish partnerships with other businesses, enabling members to enjoy discounts or special offers when using partner services. This can include discounts on travel bookings, dining, entertainment, shopping, or access to exclusive events.
  • VIP Experiences: Some banks offer loyalty program members the opportunity to participate in exclusive events, such as VIP concerts, sporting events, or networking gatherings. These unique experiences can create a sense of exclusivity and appreciation for the customers' loyalty.
  • Personalized offers and recommendations: Loyalty program members may receive personalized offers, tailored product recommendations, or customized financial advice based on their banking history, preferences, and financial goals. This personalization demonstrates the bank's commitment to understanding and meeting the individual needs of its loyal customers.

Tips for setting up bank rewards programs in 2024

As customer expectations evolve and competition intensifies, every financial institution needs to stay ahead by offering compelling rewards and incentives in order to increase customer lifetime value. Ultimately, financial loyalty programs are much about meeting the needs of those who buy bank products and services. 

Here are a few things that may help you achieve success when creating your own banking loyalty strategy:

1. Clear and attainable rewards structure

Successful bank rewards programs begin with a clear and attainable rewards structure. Bank customers should understand how to earn points or rewards and what to expect in return. Transparency and excitement around the program are key. Rewards should hold value and align with customer preferences. Regularly reviewing and updating the rewards structure ensures its relevance and competitiveness. 

Here is an example of the Bank of America, go-to US bank, and their rewards landing page with program mechanics explainer.

Bank of America – example of a loyalty program explainer landing page

2. Personalization and customization options

Personalization is vital for a successful loyalty program. Tailoring rewards to individual preferences creates a more meaningful experience. Offering a range of reward options lets customers choose what resonates with them. Leveraging data analytics provides insights for targeted offers and recommendations, enhancing the customer experience.

For instance, Revolut offers location-specific perks to their UK customers with tasty 30% cashback on London pubs and restaurants. 

Revolut Rewards – example of a geolocation-based loyalty rewards

3. Seamless integration across banking channels

Seamless integration across channels is crucial. Customers expect a consistent experience in branches, online banking, apps, and customer service – real-time data synchronization enables convenience and accessibility. Banks must invest in technology for a unified customer experience.

4. Effective communication and engagement strategies

Communication is key for engagement. A given financial institution must clearly communicate the program's value and keep customers informed about points, rewards, and promotions through channels like email, SMS, or in-app notifications. Personalized offers and interactive campaigns enhance the program experience and gather insights for continuous improvement.

5. Gamification and interactive experiences

Gamification adds excitement to loyalty programs. Progress bars, badges, and challenges motivate customers to earn more points and reach higher tiers. Collaborations for exclusive experiences or promotions create a sense of fun and engagement. These elements enhance the overall customer experience and strengthen their connection with the bank. 

Bank on customer loyalty programs with Voucherify

If you are wondering how to create a customer loyalty program in the banking industry, the first thing you need to consider is finding a proper loyalty solution that can help you establish and monitor the program itself and, as a result, increase customer lifetime value.

As a high-class loyalty software, Voucherify is an ideal solution for creating a dynamic banking rewards program, thanks to its API-first and headless architecture. 

Conclusions

Creating effective bank loyalty programs in 2024 holds immense significance for both banks and their customers. Loyalty programs offer a range of benefits, including enhanced customer engagement, increased customer satisfaction, a competitive advantage in the industry, and personalized offers. They allow banks to build lasting relationships, gather valuable customer insights, and tailor their offerings to meet individual needs.

In this ever-evolving digital era, the loyalty equation becomes a powerful tool for banks and customers alike, creating a win-win scenario that strengthens relationships, drives mutual growth, and fosters a rewarding banking experience.

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