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Brand Loyalty Programs In A New Era Of Consumerism

As CTO of Engage People Inc. Len Covello helps companies differentiate loyalty programs to deliver a better experience for their customers

Published November 17, 2020, 7:20 a.m. EST

A growing trend of enterprise rewards partnerships globally reveals the untapped potential of the $200-billion loyalty market while illustrating points’ portability as digital currency in a pandemic-stricken economy. From JPMorgan Chase, Fidelity National Information Services (FIS) and American Express, companies today are trying to unlock hidden value from overlooked loyalty silos via securitization, universal redemption, open banking and payment network integrations. These trends and others are opening loyalty programs to new ways of operating. As CTO of a company that helps clients build their own programs, I see this new space making more room for technology to drive the success of new — and established — loyalty reward programs.

In 2011, it was estimated $16 billion in loyalty reward points went unspent. In a more recent survey conducted in 2017, 31% of the 1,001 people surveyed had never redeemed credit card rewards. In this ecosystem, JPMorgan Chase and Affinity — whose platform gives institutional investors access to the loyalty economy — are partnering to create tradable securities backed by pools of loyalty points from airlines, hotels and others.

For programs themselves, one of the biggest players, AmEx, now has partnerships with several companies, including Boxed, GrubHub, and a couple of my own company’s partners, Amazon and Best Buy. In addition, FIS and PayPal took their partnership and expanded it, allowing cardholders from institutions participating in the FIS Premium Payback network a chance to use their points to purchase items from PayPal merchants around the world. As these companies lead loyalty-point innovation and adoption, increasingly other retailers, brands and consumers will come to view points as currency.

A strong narrative — minting new monetization models out of legacy loyalty programs — is that the impact of the Covid-19 pandemic on consumer behavior will transform retail commerce and financial services forever.

Consumerism In A Post-Covid World

While questions regarding the long-term stability and health of the global economy linger, the immediate aftereffects of the pandemic have been most noticeable in the realms of e-commerce and mobile banking. Both are likely to gain from continued loyalty program innovation.

In July, e-commerce sales grew 55% year-over-year, according to data from Adobe. Additionally, online shopping has already surpassed $2 billion in daily sales 130 times this year, versus two days in 2019 — outside of the holiday season. But August YOY metrics registered a slight dip down to only a 42% growth, as customers began to feel more comfortable with in-store shopping again or didn’t shop at all.

Despite rising quarantine fatigue and an uptick in brick-and-mortar shopping in quarter three, 27 retailers have already gone bankrupt this year, including Neiman Marcus, J.C. Penney, Century 21, J. Crew and Brooks Brothers. According to The Wall Street Journal, nearly 6,000 stores have closed due to 18 Covid-induced bankruptcies tracked (paywall). Solvent retailers have also closed thousands of stores in lower-trafficked and revenue-producing locations.

Physical bank branches have also seen closures accelerated by the virus. At the height of the lockdown, about a quarter of bank branches closed globally — at least temporarily — according to estimates by consultancy KPMG. For many others, digital transformation has been thrust to the forefront.

As brick-and-mortar locations close, giving way to digital-first shopping and retail banking in an age of economic uncertainty, loyalty programs have a ripe opportunity to supply much-needed liquidity and monetary relief for consumers and enterprises alike. But in order to unlock loyalty points’ true potential as a valuable form of currency, retailers should think more like fintech firms and recombine old reward models within modern open-banking paradigms.

Frictionless Loyalty

According to consultancy Deloitte, open banking refers to the shift from a closed model to a more open one where data can be shared between different institutions within the banking ecosystem using the authority granted by a customer. For example, open banking can help facilitate the switch from a checking or savings account at one bank to a new account at a different bank.

A core feature of the open-banking moment and of modern fintech is the application programming interface (API). In the context of transforming loyalty points into a currency that can be spent across merchant networks, APIs enable the type of nimble infrastructure needed to support frictionless and high-volume transactions. Illustrating this adoption of open-banking innovation is American Express. Via the card issuer’s partnership with Amazon in the U.S. and Canada, it has been at the forefront of operationalizing cardholder loyalty points into omnichannel digital currency.

A report (download required) from customer experience management firm Merkle suggests that as omnichannel payments with points expand, brands may find it necessary to go past the transaction creating experiences and engagements all along the customer journey.

Enhanced Experiences And The Value of Trust

I believe the key to creating these enhanced user experiences is personalization. From partnerships emerging in the market, it’s clear that customers are looking for greater choice in redemption within a framework that they can control or that they are already comfortable using. Integrating the ability to pay with points into affiliate networks or e-commerce partners helps make the transaction seamless and opens up new ways of communicating with customers, which can ultimately solidify trust and brand loyalty.

Looking to the future, loyalty schemes will inherently rely on more secure mechanisms to incentivize the submission of personal data from customers. Enter the personal data economy, which the Mobile Ecosystem Forum has defined as a paradigm shift where “individuals take ownership of their information, so they can share it with businesses on their terms.”

Beyond partnerships between legacy financial firms and fintechs, the operationalizing of loyalty points into full-fledged currency — to be used in physical locations as well as online — will hinge on consumers’ willingness to share their personal data with brands who will compensate them fairly for their trust.

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