Pay for Play

By Cipriano, Audrey | Independent Banker, May 2006 | Go to article overview
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Pay for Play

Cipriano, Audrey, Independent Banker

Strategies for boosting profits from reward card programs

While it might be an exaggeration to claim that every credit and debit card in today's marketplace offers the cardholder a sweet deal, it's actually not too far off the mark. Nearly 60 percent of credit card direct mail solicitations are tied to a rewards program. An increasing number of debit card issuers are also borrowing this play from the credit card issuer handbook and linking rewards programs and rebates to their debit offerings.

The impetus driving this trend is the pursuit of customer loyalty (which subsequently correlates to increased outstandings, increased usage, increased customer relationships and the end-all overarching objective: increased profitability). Issuers must evaluate their loyalty programs and determine what rewards and benefits will drive credit and debit profitability, while simultaneously benefiting existing products they have in the market. Experts from ICBA payments services subsidiary, ICBA Bancard and its processor, Fidelity National Information Services (formerly Certegy Card Services) agree that finding the right mix of rewards for loyalty and profits takes some planning and forethought.

Spring Cleaning

"A number of community banks have offered rewards for a few years now. It's important to periodically take a fresh look at these programs," says Paul Weston, president and CEO of TCM Bank, the limitedpurpose bank owned by ICBA Bancard. "Are they getting the lift they should from their programs or could the programs use a makeover?"

Dennis Driscoll, vice president of Loyalty Services for Fidelity concurs. He recommends that when a bank begins evaluating its program to start by comparing the average number of transactions per card, the percentage of active cards and the average transaction value of its loyalty versus non-loyalty programs. "You have to consider whether you are making more money per account after expenses than you made before you offered rewards."

He adds that banks should explore possibilities such as getting more mileage from their loyalty programs by increasing the number of points required to redeem rewards. Take airline rewards programs, for example. Many banks set up these programs more than a decade ago but have not adjusted the number of points required for a free airline ticket, despite the fact that ticket prices have increased substantially and most airlines have raised the required points for their own free trips.

"Banks are often afraid that if they raise the points levels, customers will complain. When the price of fuel goes up, gasoline stations aren't afraid to raise the prices at the pumps. It's an intelligent business decision," Driscoll says.

Making an Offer

Rebates and rewards must also be relevant to the consumer.

Last year Maritz Loyalty Marketing found that with so many rewards choices flooding the marketplace, consumers have become picky. The firm reported that 20 percent of the cardholders surveyed said that they had switched credit or debit rewards cards because they no longer cared for their redemption options.

"Gauge the competition and find out what cards your customers are using," says Driscoll. One of the best ways to do this is to call up the recipients of the last 25 mortgages or other consumer loans the bank has made and make a list of the credit cards customers are using. "It's very easy to determine which cards are the most popular and check out what rewards the cards offer."

Weston adds that banks should get creative and consider tying their loyalty programs to existing bank products and services. "You could knock a fraction of a percentage off an auto loan or reduce the closing costs of a mortgage for consumers who reach a certain level of card points."

Other loyalty programs that have been gaining in popularity are ones that give cardholders unique experiences. Lifestyle loyalty programs allow cardholders to redeem points for tandem skydiving, snowboarding, dive lessons, cooking classes, fighter pilot experiences and more.

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