How Does Your Bank’s Loyalty Program Stack Up?

Financial institutions think rewards programs are an effective tool for acquisition, but should they focus on retention as the primary goal instead?

In theory, fielding a successful loyalty program should come naturally for retail financial institutions, where service and engagement have long been key drivers tied to profitability. Indeed, many banks and credit unions see value in loyalty programs; the majority have some form of rewards scheme, regardless of the institution’s size. Yet does the perceived value match the reality? In an increasingly competitive environment where consumers have a vast array of banking options, are banking providers successfully reaping the full value of their loyalty programs?

Forrester Consulting polled 150 directors and brand managers — including 50 within the banking industry — to better understand how those overseeing loyalty programs craft their strategy for optimum results. The study found that loyalty marketers in the financial industry have high aspirations for their programs but are not universally satisfied with performance. However, those whose loyalty programs integrated multiple channels and high-engagement mechanisms reported greater satisfaction with their program performance.


Goals for Loyalty Programs Vary

Of course the immediate goal of any loyalty program should be to encourage profitable behaviors. Exactly what those are, however, varies significantly between the banking and other industries.


Somewhat ironically, the biggest objective for financial institutions offering loyalty program is not actually loyalty. 66% of financial executives said acquiring new customers was their top strategic objective for their loyalty program. Customer retention comes in at #2.

Financial institutions are also more focused on “enriching their customer relationships” through loyalty programs than those in other industries. However, retail financial institutions might want to reconsider their #1 priority — acquisition. Attempting to incentivize prospective accountholders with rewards programs has not played well in banking. Customers who open accounts in order to receive a reward are typically the ones who soon fall inactive, contributing to the profit-drain of silent attrition.

Key Question: Are bankers missing opportunities by over-emphasizing loyalty programs as tools of acquisition rather than engagement?

Communication Channels and Strategies

Overall, greater use of multiple communication channels equates with higher levels of satisfaction and success in driving behaviors, the study showed. This was also true among financial institution loyalty marketers.

Significantly higher percentages of financial institutions than other industries reported using call centers (69% versus 52%) and mass media (63% vs. 49%). Financial institutions also favored digital options in their plans to expand channels, including 38% who said they intend to increase their use of a mobile website and 34% who will venture into online chat.


Through these multiple channels, financial institutions set the highest priority on driving accountholders toward brand advocacy actions, such as sharing referrals and ratings. Two-thirds cited it as the top behavior they seek to influence, versus half of marketers in other industries. In fact, it was the only objective for which banking providers expressed a greater desire than overall marketers. Other industries gave greater weight to program enrollment, member interaction with a website, completion of a customer profile, points earning and redemption behaviors, and logging into a mobile app or website.


Interestingly, financial institutions are less exacting in how they define an active program member. All marketers placed the greatest emphasis on enrollment as a qualifier of active status, yet financial institutions were significantly less concerned with post-enrollment behaviors that are typically associated with greater levels of engagement, such as earning points and redeeming points for rewards (both 22%) and completing ratings and reviews (13%).

Financial institutions were also less likely than other industries to employ the kind of reward mechanisms associated with greater customer engagement, including reward auctions and sweepstakes (both 9%) and instant discounts (25%). However, financial institutions made greater use of mobile rewards and tiered status than other industries (44% vs. 38% for both).

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Tepid Satisfaction With the Performance of Loyalty Programs

Overall, loyalty marketers seemed aware their programs could be doing better; only 13% of financial institution decision-makers and 16% of all marketers reported being completely satisfied with their programs. Twice as many financial marketers were completely unsatisfied with their programs compared to all survey respondents. The majority of marketers — both in banking and outside the industry — expressed tepid feelings for their program’s performance, saying they were only somewhat satisfied. Clearly, they’re aware their programs have room for improvement.

Financial marketers place greater weight on customer retention and share of customer wallet when assessing the impact of their loyalty strategies. Financial institutions favored those outcomes by 81% and 44% respectively, versus 74% and 31% among all industries.


Key Takeaways: Forrester’s report makes several valuable recommendations based on this data, including the need for loyalty marketers to realize their loyalty programs are multi-purpose tools that can, when well deployed, improve acquisition rates, deepen customer engagement and reduce attrition. A successful loyalty program requires marketers to engage in relevant, contextual communication with members across multiple channels, presenting them with a diverse, appealing and relevant rewards mix.

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