Consumers may be reluctant to fully rely on challenger banks, as they still perceive the cost of switching to be high, and coupled with a ‘flight to safety’ amid economic turbulence, many have been hesitant to move all of their financial matters. However, the convenience of a digitally-native, seamless customer experience means that their cards are finding their way into more digital wallets. These relative newcomers are increasingly being used for day-to-day purchasing, as tech-savvy consumers recognise the advantages that up-and-coming fintechs can offer. For sure traditional banks are still feeling the threat of these challengers, and many are trying to understand both the nature of the challenge, and how they can respond to it.
With the disruption now faced by the whole industry, banks face a once-in-a-generation opportunity to truly engage with customers and find unique ways to add value and differentiate themselves. The challenge for traditional banks will be to ensure their payment cards hold the top spot in consumer wallets, helping them to fend off competitors while increasing transaction volume. To do this, they will need to rethink customer engagement, with targeted programmes responding to consumer demands for simplicity, transparency and value.
Using Data and Rewards to Drive Engagement
Digital transformation allows financial services brands to be more interactive with their customers, facilitating better engagement – however, this requires unique customer data to better understand their behaviour and anticipate their needs, a challenge that can often be made more complex by data privacy regulations restricting the level of granular insight that a bank can gain.
As payment transactions are often the most frequent interaction a customer has with their bank, payment-linked rewards are an effective way to obtain this valuable data; it incentivises the customer to use a particular payment card more often; ideally exclusively. It also presents an opportunity to engage customers with marketing communications and personalised rewards matching their preferences and spending patterns. Not only do these rewards raise perceived switching costs, as the customer would be sacrificing an opportunity by not continuing to use the card to earn further rewards or gain prestige, they also enable credit card issuers to earn more through the increase in transactions.
Financial services brands can then pull this data together to help create highly targeted, relevant and personalised offers and discounts to their customers, and can then push these out directly through highly-visible digital channels for maximum engagement.
What's next for this industry/sector?
Brand engagement through personalised offers and incentives are key to winning over customers initially, and can help put payment cards top of wallet and mind. The insights gained from this additional data can then help banks to create even further personalised and relevant real-time offers and rewards, thereby driving card use even higher – and demonstrating the real power of payment-linked rewards.