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Perspective: How Loyalty Programs Have Evolved

Traditional loyalty needs a makeover.

While loyalty marketing continues to evolve at a rapid pace, many programs still offer the traditional credit or debit program. In a traditional loyalty program, consumers are rewarded for using the payment card that drives more revenue for the financial institution, and program funding is supported by the program owner (i.e. financial institution). Earned rewards can take the form of cash back, points toward redemption for select merchandise in an online mall, airline miles, gift cards, or even donations to charities designated by the consumers. Over the years, these programs have proven their value to issuers and financial institutions by driving consumers to spend more with rewards cards compared to non-rewards cards. Consumers expect, at minimum this type of program and acquisition stats prove this is still a draw.

The ‘traditional’ program remains a mainstay for credit providers. On the debit side, financial institutions continue to pull back from their funding of these programs. It was once common for consumers to earn a quarter or a half of a basis point for every dollar spent in the program, but since the Durbin Amendment went into effect, Debit portfolio managers have sought out alternatives. . While some banks have terminated their debit rewards program; others continue to maintain a low level bank funded program that may entail bonuses or incentives to drive purchases with the card. I see a slight resurgence of fees that are waived through program usage thresholds and an aggressive search for new funding sources.

More to come on that subject!

Molly Plozay is vice president of loyalty services at First Data.