July 12, 2011 11:00 AM Eastern Daylight Time
Merchant-Funded Rewards Programs: Moneymakers for Financial Institutions, Market Makers for Merchants
Weaker Economy and New Regulations Diminish Revenue and Customer Loyalty Benefits of Traditional Rewards Programs
SAN FRANCISCO--(BUSINESS WIRE)--Javelin Strategy & Research announces its latest research report — “Evolving Rewards Strategies: How Merchant-Funded Programs Will Usher in a New Era of Loyalty for FIs.” In the wake of a weaker economy and the recent passing of revenue-squeezing regulations, Financial Institutions (FIs) should jettison their traditional payment card-based rewards programs in favor of merchant-funded rewards that reduce costs, generate revenue, and build customer loyalty. By joining forces with FIs, merchants gain access to FIs’ transactional data to develop highly targeted marketing campaigns. The report, based on data from three surveys totaling more than 15,000 consumers, examines today’s changing payments and rewards environments, presents the key strategic ways merchant-funded rewards programs can be a win-win for both FIs and merchants, and recommends how FIs should evaluate, implement, and promote these programs.
“Consumers love rewards - almost two-thirds of consumers say that rewards drive their payment choice”
With decreased consumer discretionary spending, FIs face revenue reductions that are only compounded by new revenue-restricting regulations. Javelin predicts that Durbin and Regulation E together will create up to a $16.4 billion loss of annual revenue for debit card issuers. To circumvent these losses, FIs should reassess their existing rewards models and implement merchant-funded rewards programs, in which merchants profit by picking up a large portion of program expenses, and FIs are able to provide more targeted rewards to their customers.
“Consumers love rewards - almost two-thirds of consumers say that rewards drive their payment choice,” said Beth Robertson, Director of Payments Research at Javelin. “But FIs don’t have to accept the status quo of traditional rewards programs. They can offer customers a richer reward experience that satisfies their customers, while enabling delivery of more cost-effective programs.”
Merchants also come out ahead when partnering with FIs by gaining access to transactional data. Gaining a wealth of critical consumer purchasing information through their rewards program relationships with banks, merchants can promote effective marketing campaigns to targeted consumers through multiple channels, including mobile delivery of rewards offers.
“Look at the exploding popularity of the Groupon and LivingSocial daily deal sites,” notes Javelin’s researcher, Aleia Van Dyke. “With access to consumer transactional data such as demographics, location, purchasing behaviors, and retail history, merchants will be able to customize their offers to appeal to specific consumer groups, rather than flood the market with generic offers. Merchant-funded rewards programs are a win-win for FIs and merchants, as merchants gain markets, and FIs reduce their costs.”
Selected Key Report Findings – Evolving Rewards Strategies
- The importance and evolution of rewards programs and how rewards influence consumers’ payment choices.
- In-depth profiles of seven leading third-party rewards vendors that offer merchant-funded programs: Access Development, Affinity Solutions, BillShrink, Cardlytics, Cartera Commerce, Edō Interactive, and FIS.
- How FIs - and merchants - can develop and match rewards strategies to consumers’ behaviors, demographics, and payment preferences.
- How FIs can utilize mobile technologies and social networks to promote and deliver rewards programs to consumers.
About Javelin Strategy & Research
Javelin Strategy & Research is the leading provider of quantitative and qualitative research focused on the global financial services industry. Our extensive quantitative data and deep analyst experience enable us to forecast the direction of the financial services market and make recommendations that empower you and your business to succeed.
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