The Financial Services Rewards Challenge
Most modern reward systems are based only on the buy aspect of transactions: customers earn points for purchases and redeem them for rewards. This “earn and burn” approach works well for immediate transactions, but what about the financial services industry, where products like savings accounts, loans, and even insurance don’t translate directly into immediate receivables?
The financial services industry presents a unique challenge. Loans can be refinanced, insurance policies canceled, and investments moved elsewhere. Traditional “earn and burn” programs don’t work efficiently for financial services and increase marketing waste.
Despite this lack of immediate revenue which can be directly translated into loyalty rewards, these products still generate profit through interest rates, premiums, and fees.
In today’s competitive market, customer retention is crucial. Customers are bombarded with offers and comparison tools, so even a small difference can entice them to switch providers. Building customer loyalty is essential, and a well-designed reward program can be a powerful tool.
Rewarding What You Hold
A more effective approach in the financial services is to reward customers based on what they currently hold with the company. Similar to calculating interest, rewards can be calculated daily based on the value, type and number of products a customer holds.
This way the rewards system automatically adjusts for any changes in a customer’s portfolio. If the customer invests more money into their financial products or services, more rewards are calculated and received. Alternatively, if the customer decreases their investment in the financial products or services less rewards are calculated and received.
Fostering Cross-Selling
This “hold-based” system not only rewards loyalty but can also encourage cross-selling. By offering bonus rewards for holding multiple products, you incentivise customers to consolidate their financial needs with your company.
Expanding this approach, rewards may also be calculated based on the number, value and type of products held allowing for a differentiation between products relevant to a company’s business model. This way a reward system would be able to promote individual or groups of products and increase customer share of wallet.
Real-World Examples
Insurance
Consider an insurance company offering two products: compulsory third-party liability (TPL) and comprehensive car insurance. Naturally, the company wants customers to purchase both. A traditional approach might offer a discount for buying both simultaneously. However, what if a customer only needs comprehensive coverage now but will need TPL later? Similarly, what if a customer cancels one of the policies shortly after purchase? Ideally, rewards should be allocated only to the premium part which could not be recouped by the customer say by canceling insurance and getting a portion of money back.
By establishing a comprehensive rewards system, the company can reward the customer from the first transaction and provide additional incentives to buy more products, and by rewarding on the hold value will ensure fair rewards allocation and benefit for both sides of the transaction.
Loans
Consider a loan scenario where a customer gets a loan and is rewarded for the transaction, but later decides to refinance the loan having found a slightly lower interest. What if the customer had two loans and refinanced both to another financial institution. Ideally, rewards should be allocated only for the duration while lending institutions were charging interest for the mortgage or loan.
Establishing a rewards system with the ability to calculate rewards based on the hold value of the borrowed amount will always ensure that the customer is only rewarded while he is paying interest on the loan. In addition, if cross selling rules are enabled the company can reward the customer from the first transaction and provide additional incentives to buy more products by allocating additional rewards.
Wealth
Consider wealth products where a customer subscribes to a wealth product and invests a considerable amount of money. The amount can vary but money invested can be rewarded by calculating reward on the hold value, in this case the invested amount, and provide an additional incentive for the customer to invest more or invest in different wealth products if cross selling rules are enabled.
All of these scenarios can be mixed together in one reward context for the customer, e.g. cross sell between product domains like Insurance, Wealth and Loans and can be managed by one capable rewards system. And if immediate reward should be allocated to support normal “earn and burn” approach the system will support this as well.
How good is that?
Beyond Transactions – A More Rewarding Future
Traditional reward programs in the financial services industry often fall short by only focusing only on the “buy” aspect of rewards. A “hold-based” system offers a more effective solution. By rewarding customers based on the value and number of products they hold, this approach fosters loyalty, encourages cross-selling, and automatically adjusts for changes in their portfolio.
The result is a win-win situation: customers are rewarded for their long-term commitment, and financial institutions benefit from both increased customer retention and increased customer share of wallet.
Of course, a well-established rewards system in financial services must support both types of rewards allocation on buy and on hold and support a variety of rewards scenarios. It also must have the ability to configure rewards allocation and calculation based on factors like the number and types of products that customers have and be easy to change and customize.
