As 2022 approaches, it’s time to start looking at the trends we see emerging in the banking and financial services industries. These are what we hear and see from our partners in banking and beyond as trends that will continue to take shape over the coming year.
1. Loyalty programs will become table stakes. Loyalty programs, namely cashback and e-commerce coupon offers, are on the rise, serving as key differentiators for players like PayPal (with their acquisition of Honey) and Capital One Shopping. We expect more financial institutions to roll out similar rewards programs to create customer value, retain existing customers and acquire new customers at a lower cost in 2022.
It is no coincidence that e-commerce rewards are the new battleground in the war for customer retention, given the huge increase in online shopping which has accelerated further over the past two years. . Also consider that cashback has become the preferred reward currency for consumers in general. With inflation on the rise, customers are looking for ways to maximize their money and offset the costs of rising prices with cash back rewards rather than saving points or credits for future purchases. So Cash Back Rewards are a perfect answer for people looking to get more value from online purchases than they already do almost every day.
Plus, today’s banking customer is just waiting for cash back and rewards programs. An August 2021 survey of banking customers by American Banker / Monigle Agency found that “… rewards and loyalty remain paramount for the customer experience, regardless of the type of financial institution or product.” Additionally, as Monigle’s Senior Director of Strategy, Brian Elkin
Noted: Reward programs can inspire customers to use the services of and “foster emotional bonds” with their bank or credit union, “by deepening bonding and loyalty”.
To defend against the threat of customer attrition, more and more banks need to integrate features to build customer loyalty and deliver more value to customers. Using the budgets of online merchants to provide consumers with shopping rewards that enable redemption is a way not only to create new revenue streams, but also to deliver crucial added value to customers and increase their return. loyalty.
2. Banks will have to diversify their sources of income. Due to an increasingly fragmented set of challenger banks and Buy Now, Pay Later (BNPL) startups, as well as traditional competition from other banks and new payment competitors such as PayPal, FIs face an increasingly competitive landscape.
This new competitive set is gaining shares in traditional banks by putting pressure on them on three fronts:
These startups are tackling niche verticals, such as ‘banks for vegans’, the LGBTQ community or the
They reduce or completely eliminate fees, including ATM, overdraft, and other fees.
Finally, they offer ever-growing rewards for customer retention, loyalty, and acquisition, often shifting almost all interchange revenue to consumers – and more.
As banks compete with threats from emerging competitors by corresponding to their reduced or waived fee offers, it is essential to replace this lost fee income. However, it’s not just about revenue – at the end of the day, it’s also a battle for long-term customer loyalty.
Banks will need to think ahead to determine not only how they can preserve their income, but also stay relevant and retain their customers.
Here again, we anticipate that more banks will need to find creative ways to leverage the alternative budgets that merchants make available (through marketing funds, for example) that reward their customers with cashbacks and other incentives. , delivering value to critical touchpoints during the course of their typical online shopping journey.
Banks will need to build in offsets for lost commission income and position themselves as a useful partner or “buying companion” for customers. By leveraging tools such as browser extensions or applications with cash back rewards for e-commerce, banks can create new revenue streams and strengthen the notion that they are a partner, helping customers to take financial responsibility through rewards for the online purchases they already make.
3. Banks must become more aggressive in order to win “bidding wars”. Alternative payment methods are growing in popularity, and banks and card issuers are facing wallet share challenges on online purchases like never before. Tools like ‘Buy Now, Pay Later’, PayPal (and its own BNPL feature), and digital wallets capture more of the wallet at checkout.
BNPL as the payment method of choice by consumers for online purchases has increased by around 60-70% in 2021 compared to 2020, per
bath. Digital wallets (including Google Pay and Apple Pay) as a payment method for e-commerce
gained 6 percentage points market share in 2020 compared to 2019. And this is in addition to PayPal as a type of payment already offered on more than
20 million e-commerce sites and having about
30% market share at the register.
The growing choice of payment types makes it difficult for card issuers and FIs to stay at the top and top of the portfolio. The alternative payment methods mentioned above are presented to consumers earlier, and in more relevant locations, during their online shopping journey.
Not only do they withdraw portfolio shares at the point of checkout, but these companies also market their type of offer before the point of purchase. For example, they offer “bonuses” such as increased rewards when this offer is used in a purchase. They aggressively market these promotions directly to their customers.
So where does that leave traditional financial institutions and card issuers? Banks / card issuers will have to become equally aggressive. They will have to innovate while they still have the possibility.
In order to retain portfolio share and establish primacy as the preferred type of bidding, banks must find tools that position their offering as the preferred choice, higher in the buying funnel. . It is not enough to simply be present on the payment page, but to position the type of offer of a given bank as preferred even before the customer adds an item to their cart.
For example, banks / FIs can integrate a loyalty program with cash back rewards, allowing the customer to recoup part of their purchase when they use a given offer / card. In this use case, the cash back reward can act as a psychological magnet which, when activated, causes the customer to make a purchase with the preferred type of offer in order to ‘earn’ that cash back. .
The key is to creatively use promotional tools and features like these to connect with a customer even before they’ve chosen a merchant to shop with.