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Unlock loyalty, unlock success: Why financial institutions need rewards programs

Insights 24 November 2023
Lady on laptop

In financial services, digital disruptors have set a new standard in banking. Their hyper-focus on the customer – as well as extreme agility to release new products and services into the market at rapid pace – mean emerging fintechs and digital start-up banks are poaching more customers than ever from traditional banks and financial institutions.

The result for everyone else? Being able to quickly react to market shifts and evolving consumer expectations is no longer a nice to have in financial services, it’s a business imperative.

Staying ahead of the big switch

With consumers now demanding personalized and relevant experiences at every turn, there’s an increasing expectation around receiving additional benefits in exchange for their loyalty.

What’s more, that loyalty is easier than ever to lose – with technology making it quick and simple to move accounts. On average, in the UK over 113,000 customers switched their current bank account during the first half of 2023, meaning it’s become more important than ever for financial institutions to explore new ways of driving a higher frequency in customer engagement to retain their business.

To reverse this rising trend in customer turnover, many financial institutions are investing in loyalty programs to boost customer retention, engagement, brand loyalty and, ultimately, drive revenue growth across their organization.

Here, we explore four key benefits of embedding loyalty programs within your financial institution.

1) Customer retention

Most marketers worth their salt know that customer acquisition is more costly than retention, but it’s still worth stating that obtaining new customers often costs 5-7 times more than keeping hold of existing ones.

Loyalty programs are adept at keeping existing customers engaged and less likely to switch to competitors. That’s because additional benefits such as rewards, discounts, and exclusive offers help customers feel valued and cherished. Many also allow customers to leverage rewards earned as a form of credit on their existing account, such as enhanced savings or mortgage payments.

This sense of relevancy and authenticity only improves when financial institutions add deeper levels of personalization to their loyalty programs, such as bonus perks on birthdays, or regular discounts/offers for a customer’s most visited store or most purchased product.

2) Enhanced brand loyalty

By helping establish a strong emotional connection with clients, loyalty programs help foster a sense of engagement and connection between customers and their bank or financial institution, increasing the probability they’ll stay loyal to them in the long term.

Enhanced personalization is an obvious method for appealing to a customer’s emotions, but other techniques such as gamification and storytelling help customers feel appreciated and recognized.

Going further than this, many banks and financial institutions use their loyalty programs to invest in local communities, charities, and other worthy causes. Some start-ups, such as Fana and Ekko, base their entire proposition around tackling climate change and affecting positive change.

In a world where positive social impact and environmental sustainability are top of mind for customers when choosing the brands they buy from, knowing their bank is giving back is a vital way to garner long-term trust and loyalty.

3) Data insights

Data is the lifeblood of any successful loyalty program, enabling deeper levels of understanding and personalization so that banks can offer more tailored rewards and additional benefits to strengthen customer relationships.

The insights collected from loyalty programs benefit not only the program itself, but also serves other areas of the business, such as enhancing future targeted marketing campaigns or product development.

Because loyalty programs collect behavioral and transactional data, banks and financial institutions can use the relevant information to segment customers by what they do, rather than who they are. What’s more, customer activity, preferences, and expectations are constantly evolving over time – but, because loyalty programs track everyday spend and activity, brands can keep track of how their customers are changing and move them into new segments accordingly.

When combined with the additional insights collected by an open banking approach – where additional services from other brands are incorporated into a bank’s offering – financial institutions can personalize and market to customers based on their total transaction profile.

4) Increased revenue

Of course, loyalty programs don’t only benefit the end customer, they’re also hugely profitable for the overall business too. For every purchase, financial institutions see a percentage return, leading to greater revenue streams.

Loyalty programs also encourage repeat purchases and cross-sell opportunities, which boost revenue and profitability over time. The best loyalty programs unlock access to thousands of vendors and merchants from dozens of industries and verticals, making it easy for customers to apply their loyalty purchases to everyday spend – and perhaps even win that fierce race for account/card primacy.

What does Valuedynamx do differently?

Valuedynamx operates on a global scale, providing a diverse range of over 10,000 merchant funded offers across more than 25 markets. Specializing in creating distinctive, market leading reward propositions that empower customers to earn through their programs.

Want to find out more about how financial institutions can increase revenue and maintain customer engagement through loyalty programs?