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1、simon-Jon Causier Joshua KohJames GethingsElif KaraLoyalty programs in bankingkey success factors and design principlesContentsExecutive Summary 4Types of loyalty programs observed in the banking industry 5Why offer a banking loyalty program?10Potential drawbacks of implementing a banking loyalty pr

2、ogram 12How to design a winning banking loyalty program?13Simon-Kucher Loyalty Program Design Framework 14Who to target?15What to reward?17What to offer?18How much to reward?19How to engage?20Operational enablers 22Conclusion 25Authors 263Loyalty programs can be incredibly powerful.They offer banks

3、the potential to delight customers,deepen relationships,influence behaviors,and improve acquisition and retention rates.However,they can also be costly and complex to run.So how should banks consider the opportunity offered?Should they invest or not?What does good look like?How can an existing schem

4、e be improved?These are some of the questions we examine in this paper.Simon-Kucher is a leading global advisory firm,uniquely focusing on Better Growth.Our partners and consultants have designed successful loyalty programs across multi-ple industries;from airlines to telecoms to ride-sharing and be

5、yond.Within banking,we have designed rewards programs for 60+banks and worked with clients to optimize many more.Here we share some of our learnings and hope to inspire others to deliver more value and delight their customers.4Executive SummaryLoyalty programs range from simple monoline schemes(thin

6、k credit card rewards)through to whole-of-bank points-based programs linked to a range of specific behav-iors.There are of course advantages to both models.However,in recent years the trend has moved toward more holistic programs designed to deepen engagement and loyalty across the banks full range

7、of services.There are many benefits to these programs:Improved customer acquisition,retention,and cross-selling Competitive advantage,either as in offensive or defensive capacity Providing a mechanism to deliver other strategic objectives(e.g.personalization of experience or relationship-based prici

8、ng)However,these programs also involve significant costs:Set-up costs:program design,technology infrastructure build,etc.Running costs:marketing,program management/maintenance,costs of rewards(if not self-funded),etc.When considering whether to launch a program,or looking to further optimize an exis

9、ting one,there should be clarity and alignment on:The strategic objective and design principles The business case The operational elements required to enable the programIn the main body of the report,we set out Simon Kuchers loyalty program design principles.When designing a loyalty program,as with

10、any organic growth initiative,its important to work through and answer a series of questions in the right order.We walk through each question in turn and outline the critical factors required to ensure a suc-cessful program.5Types of loyalty programs observed in the banking industryLoyalty programs

11、are found in multiple forms within banking.Broadly speaking there are three main types of programs:MonolineLinked-productWhole-of-bankProsConsEase of set-up and operationEfficient for focusing on Narrow view of relationship/behaviourLimited insight into customer relationships or behaviours Expands p

12、rogram to include multiple products,increasing loyalty and engagementSimple rewards management as often passed through one product(e.g.,higher deposit rate)More complex setup compared to monoline,with greater operational challengesSome degree of BU co-operation requiredPotential for compelling benef

13、its Can be a game-changer when looking to deepen customer relationships Complex and costly to set up High degree of BU co-operation required Source:Simon-Kucher1.Monoline programsThe simplest programs are aligned to single products.Most commonly,this is the credit card with rewards primarily funded

14、by interchange revenues;customers are rewarded in proportion to their card spend.These programs have proven effective in persuading customers to use higher-interchange cards as opposed to other payment methods,commensurately increasing bank revenues.Whilst still commonly found in many Exhibit 1:Loya

15、lty program type overview6markets,in markets where interchange rates have been impacted by regulation these programs have been diluted and become less impactful.One of the most popular monoline programs is the AmEx membership rewards program.By making it easy for customers to earn points and providi

16、ng a comprehensive set of rewards that these can be redeemed against,AmEx has been highly successful in driving card spend($1.5 trillion in card member spending in 20231).OBJECTIVEDrive spending on cards and increase customer engagement Earning pointsAmerican ExpressMembership Rewards ProgramRedeemi

17、ng pointsEasy to earn:Accumulate points effortlessly on everyday purchasesHigh-reward categories:Additional points for specific categoriesSupplementary cards:Earn on all supplementary cardsReferrals:Bonus points for referring new membersMembership benefitsNo expiry:Points do not expireExclusive offe

18、rs:Access to special deals and offersTravel:Use points for flights,hotels,and experiencesShopping:Use points at retailers such as AmazonGift cards:Choose from various high-street brandsCharity donations:Donate to charities via JustGivingSource:Simon-Kucher2.Linked product programsTaking things one s

19、tep further,some banks offer loyalty programs where rewards are based on more than a single product relationship.For instance,deposit interest rates may vary depending on other products held.These require some 1.AmEx Annual Report 2023Exhibit 2:AmEx Membership Rewards7degree of commercial co-operati

20、on between business units and joined up IT systems to be able to manage cross-product pricing.However,being limited to a certain set of products correspondingly limits the degree of complexity.The OCBC 360 account is a good example of such a loyalty program.The 360 account links a customers deposit

21、rate to their other banking activities(e.g.,card spend,income deposits,investments).The more a customer engages with the bank,the higher the returns on their deposits.Opportunities to further increase deposit rateCard spendCharging at least S$500 to an OCBC credit card each monthSaving growthIncreas

22、ing the account balance by S$500 or moreSalary creditDepositing a monthly salary of at least S$1,800 into the current accountBalance growthMaintaining an average daily balance of S$200,000 or more InvestmentPurchasing qualified investment products through OCBC InsuranceBuying an eligible insurance p

23、olicy from OCBC Qualifying customer activities that result in a higher interest rate on their depositsOCBC 360 AccountActivities completedSource:Simon-KucherExhibit 3:OCBC 360 account83.Whole-of-bank programsThe most comprehensive programs attempt to build a“whole-of-bank”relationship,rewarding cust

24、omers more holistically and encouraging the customer to deepen their relationship across a number of product areas.These are typically operated through some form of points or alternative currency mechanism and are the most ambitious with the greatest potential upside.However,they are also major ende

25、avors,requiring inter-BU cooperation and agreements on cost-sharing,plus sophisticated relationship-based pricing technology,usually from a specialist vendor.FNBs industry-leading eBucks reward program is one of the most notable in this space.Over the last 23 years,FNB has developed a comprehensive

26、whole-of-bank rewards program,winning multiple domestic and international awards along the way.The program is available to all FNB retail,private,and business customers.The qualification and earn rules are highly targeted to each of these segments and are calibrated to align with the banks revenue a

27、nd cost drivers(e.g.,deposits,borrowing,card spend,migration from physical to digital channels).As part of the program,customers earn back a percentage of their spend on select FNB products and participating partners in the form of eBucks.The program has five reward tiers,which customers can unlock

28、by accumulating points via their banking activities with FNB.The higher the tier,the better the earn-back rate is in eBucks.The value delivered through eBucks can then be redeemed via FNBs eBucks store or directly with their program partners.9FNB eBucksDivisions&customer eligibilityReward levelsEarn

29、ing&spending eBucksDivisions included in programEligibility criteriaReward tiersEarning eBucks Personal bankingPrivate bankingBusiness bankingMaintain active current/business accountMeet minimum deposit and/or spend requirementsLog into FNB appTransact via an online channel once a month(Business onl

30、y)5 tiers of rewards available to customersTiers are set depending on the number of reward points attributed to a customers banking behaviorsThe higher the reward tier,the more eBucks a customer can earnCustomer behaviors earning reward tier pointsSpending eBucksDepos-iting incomeDigital banking act

31、ivityCredit card spendActive FNB connect SIMSavings&invest-mentsBor-rowingTaking out insur-anceCustomers earn back a percentage of their spend on select FNB products and participating partners in the form of eBucksThe amount earned back depends on their reward tier(the higher the tier,the larger the

32、 percentage)eBucks Store:Buy good(e.g.,electronics,toys,gifts)directly from the eBucks shopeBucks Travel:Book flights,accommodation and car hire using eBuckseBucks Partners:Pay participating partners directly in store or online with eBucks Source:Simon-KucherExhibit 4:FNB eBucks10Why offer a banking

33、 loyalty program?Banks may choose to offer loyalty programs for various reasons,which we explore below.We focus on the benefits of a whole-of-bank program where the potential benefits are greatest,but even less ambitious programs can achieve some of the benefits detailed.1.Drive customer growth Incr

34、ease share-of-wallet:Loyalty programs can incentivize customers to use a wider range of products and services with the bank.All things being equal,an extra incentive to hold the additional product with the bank can make a crucial difference to take-up.Retain customers:Where rewards are linked to mul

35、tiple product holdings,customers have a strong incentive to keep existing business in-house and barriers to exit are raised.Acquire new customers:Attractive loyalty programs can serve as a differentiator,attracting new customers and differentiating from banks that do not offer such benefits.2.Enhanc

36、e market position Achieve a leading position:Offering a loyalty program can position a bank as a market leader,showcasing innovation and customer centricity.It can also deliver significant competitive advantages in the period before others can catch up.Stay competitive against incumbents:Where compe

37、titors offer a loyalty scheme,it is rare that others do not follow,as failure to respond would likely leave that organization at a competitive disadvantage.Remain ahead of emerging entrants:In many markets,traditional banks are coming under attack from neobanks and other specialist firms targeting s

38、pecific elements of the value chain.A loyalty program can play a role in defending the banks position by incentivizing customers to keep more of their business with the main bank.113.Deliver other strategic objectives Personalize offers and communications:Many banks are keen to find ways to personal

39、ize the banking experience but are struggling to find ways to do so.Loyalty programs offer one such route.With explicit marketing permissions,often a quid-pro-quo prerequisite for participation,and a multi-product,data-rich environment,banks are well placed to personalize both offers and communicati

40、ons.Introduce relationship-driven pricing:One particularly important element of personalization is personalized pricing,ideally considered on a relationship-wide basis.It remains a crucial strategic pillar,yet many banks find it challenging to implement effectively.Loyalty programs help in two ways.

41、Firstly,the technology and data environment needed to implement a multi-product loyalty scheme is the same as that required to implement a relationship pricing strategy.Secondly,in a points-based program,the bank has an alternative currency with which to deliver the pricing.Instead of providing valu

42、e in the form of reduced prices on core products,value can be delivered through points.This can be helpful from both an operational and competitive perspective.12Potential drawbacks of implementing a banking loyalty programDespite the many advantages of loyalty programs,there are also downsides to c

43、onsider.These include:1.Resource intensity:Developing and implementing a loyalty program requires substantial resources,both in terms of time and money.It involves significant planning,technology investment,and ongoing management.The organization design,operating model,and tools and capabilities to

44、build and run a loyalty program need to be carefully thought through.2.High costs:The financial investment needed for a robust loyalty program can be significant.This includes the cost of rewards,technology infrastructure,and marketing efforts.3.Uncertain ROI:The return on investment of loyalty prog

45、rams can be uncertain,making it a potentially risky endeavor.Measuring the direct impact of loyalty programs on profitability and customer behavior can be challenging,especially given the complexity of a multi-product or whole-of-bank program.4.Competitive reactions:Competitors may respond with simi

46、lar or enhanced offerings,escalating competitive pressures and potentially neutralizing an initial competitive advantage.13How to design a winning banking loyalty program?From the points listed above,it is clear that there are compelling reasons for banks without a loyalty program to consider implem

47、enting one.However,this decision should not be made lightly,as a poorly designed program can waste valuable resources without delivering tangible business benefits.Therefore,it is essential to develop a solid busi-ness case and a comprehensive implementation plan.The process begins by addressing a s

48、eries of fundamental design questions,outlined in the Simon-Kucher 6-step framework for loyalty program design:1.What are you looking to achieve?2.Who are you targeting?3.What behaviors will you reward?4.What types of benefits will you offer?5.How much will you reward the target behaviors?6.How will

49、 you interactive with and engage customers?For those already running a loyalty program,its important to reflect on whether the program is effectively meeting strategic objectives.Consider the following questions:Are the original goals still relevant?Are you rewarding the right behaviors?Are you spen

50、ding too much on rewards,or not enough?How can you enhance cost efficiency?Is the program still best in class,or is there room for improvement?The design framework outlined below can provide a structured approach to these issues.A thorough end-to-end review can best be guided by revisiting each of t

51、he steps in turn,whilst a view of efficiency can be addressed by a deep focus on the economic value of rewarded behaviors and the value of rewards provided.14Simon-Kucher Loyalty Program Design FrameworkWhat is the strategic objective?Who to target?What to reward?What to offer?How much to reward?How

52、 to engage?RequirementConsideration factorsBe clear on what you want to achieve and whyConsider how you will measure successIdentify target segmentsUnderstand their needs,motivations and behaviorsConsider how you will design the program to accommodate these differing needsAgree the behaviors that wi

53、ll be rewardedDetermine the form in which benefits will be delivered(e.g.points vs service upgrades)Agree the value/amount of rewards providedAgree who will be contacted,when,through which channel and with what messageConsider the key points of intervention in buying processes and reward journeys al

54、ong with customer contact preferencesConsider the economic value of rewarded behavior as well as the relative incrementality and the strategic objectiveConsider both objectives and organisational capabilitiesEnsure these align with value drivers for the bank and are also clearly measurable124365Sour

55、ce:Simon-KucherExhibit 5:Simon-Kucher Loyalty Program Design Framework15Who to target?A clear view of the target audience is a critical first step in any initiative.Why?Because different groups of customers have differing needs,wants,and economic values;as such they need to be treated differently.Fo

56、r banks with a large customer base,it can be expected that there will be different customer segments which collectively make up the target customer base.In this case,it will be important to embed segmentation into program design.One size does not fit all.Segmentation can be delivered at different le

57、vels.DBS in Singapore provide an example at the simpler end of the spectrum with customers able to choose between the DBS(upmarket)branded multiplier program,where rewards are paid out in the form of extra deposit interest,and the POSB(down-market)branded cashback program.DBS Multiplier AccountHow i

58、t worksEarn up to 4.1%p.a.with Multiplier Account when you do the following:Step 1Step 2Credit income.Transact in 1 or more categories.IncomeCredit Card/PayLah!Reatail SpendHome Loan InstalmentInsuranceInvestmentsYou will still earn base interest on the SGD balance that dont meet the eligible transa

59、ctions criteria Income+1 categoryIncome+2 categoriesIncome+3 categoriesFirst S$50,000balanceFirst S$100,000balanceFirst S$100,000balance1.80%p.a.1.90%p.a.2.20%p.a.2.10%p.a.2.20%p.a.3.00%p.a.2.40%p.a.2.50%p.a.4.10%p.a.Total eligible transactions per month S$500 to cS$15,000 S$15,000 to cS$30,000 S$30

60、,000Source:Simon-KucherExhibit 6:DBS Multiplier Account&POSB Cashback Bonus16POSB Cashback BonusAt a GlanceMaster 3 or more types of banking transactions to earn up to S$130 cashback each monthHow it worksThe more you practise,the more you prosper.Earn cashback when you master 3 or more of these:Cas

61、hback with more kick!Salary Credit(0.3%)-Capped at S$20Credit Card Spend(0.3%)-Capped at S$20Home Loan(3%)-Capped at S$30Insurance(3%)-Capped at S$30Investments(3%)-Capped at S$30Source:Simon-Kucher17What to reward?Following clarity on strategic objective,target audience,and reward mechanism,its imp

62、ortant to determine what behaviors you want to reward.If the objective is to add economic value to the organization and generate a positive ROI,then its important to clearly identify the relevant value-driving behaviors.These can include:Holding more products with the bank increasing share-of-wallet

63、 Holding higher balances with the bank increasing net interest income&AUM service fees Transacting more with the bank driving primary relationships and transaction income Using lower-cost channels driving digital adoption and lowering cost to serve18What to offer?There are a number of ways in which

64、value can be delivered through a rewards program.Here we detail some of the most common mechanisms and explain the relative pros and cons:Internal points a rewards currency controlled by the bank as the issuer.For example,the ThankYou rewards program from Citibank External points a rewards currency

65、owned by a third party.For example,AirMiles Cashbank a cash rebate paid directly to the customers account,as commonly found with many credit card reward schemes Preferential pricing better pricing on bank products(e.g.a lower loan rate or a higher deposit rate).For example,DBS Multiplier program Pri

66、ority status and service receiving priority status and service(e.g.,dedicated customer service number,personal advisor).Today these benefits are often restricted to wealthy customers rather than being offered within loyalty programs as with airline and hotel programs,perhaps highlighting a missed op

67、portunity.These are examined below:CashbackExternal pointsInternal pointsProsConsAllows for high flexibility,control,and customisation of reward levelsComplex to set up and administer.High initial investmentEasier to implement than internal points with lower set-up costsLess control and greater thir

68、d-party dependency vs internal pointsPriority status Preferential pricingSimple to implement.Highly quantifiableEffective in incentivising target behaviours across selected productsCan enhance customer experience and brandLimited application(usually seen Has an overreliance on rate,attracting more r

69、ate-sensitive customers who are traditionally less stickyCan add operational complexity Source:Simon-Kucher19How much to reward?Having determined the structural elements of a reward program,it remains crucial to set the absolute level of reward.This can be broken down into two core elements,both of

70、which require significant analysis:Quantification of value drivers Final calibrationQuantification of value driversIf youve chosen to reward increased transactions,you first need to work out the eco-nomic value or profit generated by each additional transaction.In the case of a credit card,this is f

71、ar from straightforward.Factors such as whether it was domestic or interna-tional,debit or credit,local or foreign currency,and size of transaction are all important.You need to work out the interchange revenue,forex revenue,and card scheme cost.The card example may be an extreme one,but it does ill

72、ustrate the level of complexity involved.A detailed and robust profit model is a vital component of any reward program.Rewards calibrationAfter understanding the value of behaviors,you then need to make a judgement on how many of those transactions are truly driven by the rewards program and how man

73、y would have happened anyway.That is not a simple task.Post-launch,longitudinal analysis and cross-cohort analysis can be done to assess trends over time and differ-ences between groups of customers.Prior to launch,specialist pricing research meth-ods can be used to inform predictions of behavioral

74、changes expected from incentives.Decisions also must be calibrated according to investment budgets and funding mecha-nisms,which in turn need to align with strategy.If the program needs to be self-funding(positive internal ROI)then reward levels will be lower than where there is an investment budget

75、,perhaps designed to drive additional acquisition or retention.Because of the skillsets involved in this process,this is best managed by a pricing or value management team.In the case of multi-product or whole-of-bank programs,this should be a centralized function.20How to engage?An effective engage

76、ment strategy is critical to the success of a rewards program.The less effective the engagement the greater the risk that rewards will flow to custom-ers who would have transacted,held balances,or taken additional products regardless.To add value,the program must engage customers and drive increment

77、al behaviors.There are several elements to put in place to build an effective engagement strategy.PermissionsThe first step in customer engagement is obtaining the permissions to do so.This should be routinely requested at sign-up.In certain jurisdictions,it may even be possible to insist on the cus

78、tomer agreeing to marketing permissions as a condition of entry.Frequency,channel,and relevanceA core tenet of good marketing is to provide the right message,at the right time,in the right way,and to the right customer.Personalizing the communication strategy using data gathered through declared pre

79、ferences and/or observed behaviors will significantly increase the likelihood of driving the desire behaviors.GamificationMuch talked about,gamification really does have a role to play in loyalty programs.Where customers are close to thresholds or may aspire to higher status/recognition,simple timel

80、y messages can provide the slight nudge needed to trigger desired behav-iors.Earlier in the journey,positive reinforcement after initial steps can encourage further progression and engagement with the program.21StatusHistoryCurrent accountSavingsInsuranceMortgageSilverStatus-levelLoyalty programOnly

81、 1 more module to Gold statusLearn more123Source:Simon-Kucher1.Personalized recommendations based on data insights helps drive engagement 2.Attention of program members is directed intuitively to the missing tasks to engage and motivate them to close the gaps3.Visualization of potential future statu

82、s creates a goal gradient effect,which increases engagement with the program Banks using these techniques have seen customers using1.46 more products within two years,sales increasing by over 100%for some products,and overall higher satisfaction among both customers and client advisors.Exhibit 7:Gam

83、ification exampleIn this example from Germany,gamification techniques and behavioral economics are used to drive engagement with and progression within the program.22Operational enablersThere are many enablers that need to be in place to support a successful loyalty pro-gram.Here,we focus on two of

84、the most important,specifically:technology and organization.Monoline reward programs are simple from both a technical and organizational per-spective.Most third-party card processing systems offer the ability to provide rewards on credit card products as standard.Additionally,with credit card reward

85、s typically funded from interchange revenues on the same product,the economics are relatively simple and only one P&L is affected.When moving to a multi-product or all-of-bank program,things become much more complicated.Links need to be built between separate legacy systems for core products.New cap

86、abilities need to be built for adjusting pricing or storing points.Furthermore,on the organizational side,someone needs to be responsible for managing the program and an agreement needs to be struck on how to share the costs across each of the individual business/product lines involved.TechnologyUnl

87、ess a bank is on a particularly modern technology stack,we would typically recom-mend implementing a third-party pricing system.These systems,commonly used for relationship-based pricing,are also ideal for delivering loyalty programs.In both cases,the system is configured to use customer financial b

88、ehaviors across multiple products as the inputs.However,outputs can be configured to either adjust core product prices or deliver value in the form of loyalty points.23Relationship based pricing architecturePricing layerCurrent accountSavings accountPersonal LoanMortgageOperationalized through chang

89、es to core product pricesLoyalty pricing architecturePricing layerCurrent accountSavings accountPersonal LoanMortgageOperationalized throughl oyalty pointsLoyalty pointsPricing inputsPricing outputsSource:Simon-KucherOrganizationsIt is vital to consider which organizational adjustments are required

90、to support a loyalty program and specifically where ownership sits.In the table below,we consider the key success factors and,for each,the function best suited within the organization.Exhibit 8:Operationalizing loyalty pricing24321Key success factorMost relevant functionThe value exchange between cu

91、stomer behaviours and rewards is optimally calibratedPricingCustomers are effectively engaged,increasing awareness and driving actionMarketing4Appropriate technology is in placeAll activities are co-ordinated and aligned in support of the programs strategic objectiveITStrategy/loyalty teamSource:Sim

92、on-KucherWhat is immediately clear is that there is no single function capable of managing all success factors.It logically follows that placing ownership within any one function is likely to lead to problems.Perhaps the most common mistake we see is placing the marketing team in charge of loyalty.W

93、hilst engagement is critical,this risks an under-emphasis on the hard science of value exchange and the operational levers required for success.These programs typically deliver more style than substance and lead to a poor ROI.Instead,we recommend a small core program team supported by dedicated reso

94、urces from each of the other functions.Pricing teams need to manage the value exchange,but not in isolation of the other core BAU product pricing factors.The same applies for marketing and IT.Loyalty teamPricing teamMarketing teamIT&CRM teamProduct teamsDedicated resource to support loyalty teamSour

95、ce:Simon-KucherExhibit 9:Loyalty program organizational structure25ConclusionAs highlighted at the outset of this report,loyalty programs hold the promise of trans-forming customer relationships.When done well,they can elevate routine transactions,foster deeper connections,and shape customer behavio

96、r in ways that drive growth.A successful program is built on clearly defined objectives and precise customer target-ing.It seeks to maintain consumer engagement while rewarding and encouraging high-value behavior.Its effectiveness depends on having both a strong execution plan and key operational en

97、ablers in place.Several banks have excelled in this space and have achieved remarkable outcomes through their loyalty programs.However,not every bank does it perfectly,and there is undoubtedly room for improvement.Whether you are looking to launch a new program or optimize your current program,it is

98、 important to have the right partners on the journey.Our team of experts is ready to help you design a program tailored to your needs and focused on delivering impactful outcomes.Take the next step,build that deeper relationship with your customers,and you will also reap the rewards!26AuthorsJon Cau

99、sier PartnerOffice LondonTel.:+44 207 8326 700 Mobile:+44 7729 078 334jon.causiersimon-Joshua KohPartnerOffice Sydney Mobile:+61 409 577 982joshua.kohsimon-James GethingsSenior ManagerOffice Johannesburg Mobile:+27 73 492 9495james.gethingssimon-Elif KaraManagerOffice LondonTel.:+44 207 8326 700 Mobile:+44 7933 391 124elif.karasimon-Discover more on simon-Follow us on 2024 Simon-Kucher&Partners Strategy&Marketing Consultants Limited.All rights reserved.London Office10 Fleet Place,London,Great BritainTel.+44 207 8326 783londonsimon-