Innovations in Payment Card Loyalty

Publication Date	March 2007
Publisher	Datamonitor
Product Type	Report
Pages	54
ISBN Number	not applicable
Product Code	DAT04663

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Summary

Introduction

With credit cards becoming increasingly commoditized, cardholder loyalty is an area of growing importance. This report examines the theory behind cardholder loyalty. It then illustrates these in practice by profiling many of the most innovative loyalty programs in the world. This report includes an analysis of the latest chip based loyalty schemes and concludes with a "Key Learning" section.

Scope

Focuses on loyalty programs attached to payment cards.
Examines and profiles some of the most successful and innovative loyalty schemes in the world.
The research is global in its scope, examining programs from the Middle East to North America.
Conclusion draws upon examples in the report to answer the question of what makes for a successful loyalty program.

Highlights

The range of rewards is important to make the scheme attractive to all levels of spenders. A program with fantastic rewards will not be attractive to a low spender if $10,000 needs to be spent before a reward can be claimed.

Whilst chip based systems are ideal for large multi retailer schemes, they might not be a realistic option for a small issuer which might not be able form a big loyalty scheme or afford to re-equip a chain of partner merchants with new POS terminals.

Just as important as the rewards themselves is the opportunity for cardholders to accumulate points to be able to claim these rewards. The easier it is for a cardholder to amass loyalty points, the more attractive the program will be to a broad range of consumers.

Reasons to Purchase

Understand the secrets to successful payment card loyalty
Learn what action the leading card issuers are taking to attract and retain cardholders
Discover how some issuers are leveraging chip based technology to take their schemes to the next level.

Content

Introduction
- Who is the target reader?
- Scope of the report
- How to use this report
An Introduction To Payment Card Loyalty
- What is a loyalty scheme?
- Issuers must compete on price or service provision
- Price leaders offer price incentives
- Reward based loyalty schemes are used by premium service providers
- There are four key objectives of a loyalty scheme
- The primary objective is to attract new cardholders
- The second aim is to retain these cardholders
- Multi-retailer schemes offer even greater acquisition potential
- Loyalty schemes aim to make their product the "card of choice"
- Points-based schemes also reward the most active
- The final objective is to increase customer spending data
Innovations In Loyalty
- Introduction
- Rewards are being adapted to cardholders' preferences
- Many issuers are offering increasingly exciting and innovative awards
- Profile: The American Express Blue Sky card gives cardholders an unlimited choice of travel rewards
- The program offers a favourable redemption rate
- However, the value proposition is not as strong as some airline co-branded cards
- The Blue Sky program is aimed towards the mass market
- Some payment card loyalty schemes will exchange points to a different loyalty currency
- Profile: The Royal Bank of Canada has an extensive loyalty program, with the option to transfer point to other loyalty programs
- Redemption is online
- The points are transferable to other loyalty programs
- Rewards for charitable and environmentally conscious cardholders are becoming more common
- Profile: Greencard offsets the cardholder's carbon emissions
- Well designed programs allow card holders to earn extra points in a range of situations
- Profile: CitiBank's "Thank You" loyalty program has a range of merchant partners and offers cardholders a range of innovative rewards
- The program gives cardholders the opportunity to earn points by using different Citibank services
- Additional points can be earned at a range of other merchants, greatly adding to cardholders' ability to earn points
- Account management is from a dedicated website
- Cardholders benefit from a large choice of rewards
- Prepaid gift cards are a reward option
- Citibank will create a reward for cardholders
- The program promotes the Citibank brand in general
- New methods in point redemption are being more introduced
- The next step forward from quicker redemption via the internet is instant redemption
- Some issuers are leveraging chip technology to allow instant redemption in their loyalty programs
- Chips offer several advantages for loyalty over magnetic stripe
- Chip technology facilitates instantaneous redemption at the point of interaction
- Redemption at the POS is attractive to merchants too
- Chip based programs allow issuers to develop a deeper relationship with cardholders
- Profile: Garanti Bank offers cardholders a range of options on its chip-based Bonus Program
- The chip allows for instant redemption
- Garanti also have several non chip-based innovations
- Profile: Mashreqbank's WOW! Card rewards repeat purchases as opposed to transactional loyalty
- The chip allows Mashreqbank and its partners to reward transaction freqency as well as value.
- Other data stored on the chip can help further the relationship between the program and the partner
- The value offered to the retailer is considerable
- While this functionality is compelling, chip based systems are not ideal for all issuers
- Despite the benefits, chip based programs are very much in the minority
- CONCLUSIONS AND KEY LEARNINGS
- The secrets of a successful loyalty program
- It should be remembered that reward programs are not the only way to create loyalty
- Cardholders have different requirements
- There is a trade off between price and reward program
- Final thoughts on payment card loyalty
Appendix
- Definitions
- Affinity card
- Balances outstanding
- Co-branded card
- Credit card
- Charge card
- Debit card
- PoS terminal
- Research methodology
- Cards and Payments database
- Future readings
- Datamonitor's custom research capabilities
- Cards & Payments Team contact details
List of Tables
- Table 1: American Express' Blue Cash card offers a cash back rate dependent on the level of annual expenditure, 2007
- Table 2: A selection of "Experience" type rewards on the Webmiles program, 2006
- Table 3: Rates of tree replacement per type of expenditure on Greencard, 2006
- Table 4: A representative sample of credit APRs and annual fees, UK, 2007
- Table 5: Current relevant Datamonitor publications, 2007
- Table 6: Future relevant Datamonitor publications, 2007
List of Figures
- Figure 1: Three categories of reward based card loyalty schemes exist
- Figure 2: The American Express Blue Sky Card
- Figure 3: The Royal Bank of Canada has an extensive loyalty program
- Figure 4: RBC and Esso points are exchangeable in both directions
- Figure 5: The Greencard is attractive to those who care about the planet
- Figure 6: Citibank's "Thank You" program has a wide range of partners
- Figure 7: Chips can store data specific to individual merchants as well
- Figure 8: Chips can store personal information which can be used by merchants
- Figure 9: The Garanti Bonus Card - Turkey
- Figure 10: Garanti gives its partners access to detailed customer information via a website
- Figure 11: The Mashreqbank WOW! Card UAE/Qatar
- Figure 12: Chips allow merchants to encourage repeat business
- Figure 13: Chips can bring together a range of offers to make a compelling customer loyalty offering
- Figure 14: Datamonitor's core consulting capabilities