Enterprise Loyalty for banks and financial services – Part 2

I strongly believe Loyalty should be more than just point calculation and gift redemption. Banks should use Loyalty to give a fair deal to their customers. This in turn can deliver on capturing share of the wallet and increasing stickiness.

A loyalty program should allow banks to establish a 360 degree view of their customers, by looking holistically across multiple dimensions – Customer relationship value, relationship tenure, product ownership and usage, desired channel behaviour. In fact, loyalty programs should allow a blend of customer’s demographics, banking behaviour, needs to deliver on loyalty. This should be a program which uses products, channels, and customer demographics as a mix to achieve holistic rewards program success.

Such a holistic loyalty program will use a harmonious combination of various “customer attributes” like – customer segment, age, lifetime value, credit rating, demographics, etc; and, “account attributes” like – account type, balances, currency, etc; along with “product attributes” like – product type, frequency of product used, no of products taken, etc, and, “transaction attributes” like – transaction channel, location of transaction, time of transaction, etc. This combination will assign rewards for a desirable behaviour and no rewards (or even deduct) for an undesirable behaviour.

These rewards can ideally be accumulated and used against benefits which can be broadly classified as – financial or lifestyle rewards (monetary or non-monetary, as mentioned in my previous post). A lifestyle reward can be anything from – gifts from a catalogue, movie tickets, gift vouchers, lounge access, etc. And a financial reward can be cash back, fee waivers, discounts, special price plans, higher free limits, etc.

Loyalty program would also give flexibility to accumulate rewards on multiple grounds. Banks can reward their customers contextually on events, transactions, even lifecycle. One should expect capability to reward for customer birthdays, anniversaries, new year, festivals, etc. These events can potentially lead to more sales and transactions. Banks may also want to reward their customer for relationship anniversary, or may be a new product subscription. Such a holistic program also drives customer experience.

Given the market around us these days, the banks can go all out and develop relationships across multiple lifestyle franchises to deepen their redemption catalogue. These can be Jewellery, Hotels, coffee shops, Air Miles, restaurants, gym membership, lounges, club membership, etc. All such redemption options not only gives customers options to choose from, it also strengthens the loyalty program and goes a long way in creating a strong brand value.

To add to this, a holistic rewards program should allow for points adjustment, points transfer, points aggregation, points acceleration and even points expiry. This is something that again adds to the depth of the loyalty program and drives customer experience again.

A loyalty program should also give banks flexibility to run partner or merchant loyalty program as well. This should be run as usual customer loyalty scheme for a single partner or merchant. These schemes can be run as multiple tariff schemes for revenue share or commissions. Banks can even reward their merchants to do more transactions with you.

Another use of a holistic rewards program can be using it for Sweepstakes or Raffle draws for customers. This again goes a long way in building the customer relationship and stickiness.

All in all, a holistic rewards program should enable banks to get close to their customers and align the entire organisation around the mission of enhancing overall customer experience. It should bring in competitive advantage, improve operational efficiency, and enhance overall revenues and overall drive up overall customer satisfaction.

Enterprise Loyalty for Banks and Financial Services - Part 1

When we speak of loyalty and loyalty points, most of us today would know what I mean. Not only that, one is quickly reminded of a credit card and a POS machine J Traditionally for banks, loyalty was synonymous with credit cards and vice-versa. As end consumers of credit card facilities, we always associated a credit card with the loyalty points and benefits that it would bring. And we were or even today happy using such loyalty points against some gifts or merchandise or voucher, etc.

Keeping the omnipresence of credit cards and their loyalty points away for moment, let’s understand what loyalty is and why one needs it.

Literally speaking, “Loyalty” would mean, “being loyal to someone” and hence, continuing the relationship. Well, banking relationships are all monetary and not so much by conscience. And with the ever growing competition, how does one make sure, their customers are loyal to them and stick to them and continue to do and bring in business day in and day out for long-long years? Well, that is where you need a holistic rewards solution which can help you meet your objectives. You give a monetary or a non-monetary benefit as a reward for being loyal and drive desirable customer behaviour in tandem.

Not only this, with growing financial literacy among customers and ability of customers to consummate easy and real-time information over social media, they also think holistically across their banking relationships. They also think that they should be rewarded appropriately for the overall relationship and not just credit cards.

All such market and customer driven behaviour dictate a need for a holistic loyalty program for a bank. Such a program should definitely cut across all the banking products and services (including credit cards) and help the bank achieve their key broad objectives from their loyalty program.

Using a loyalty program, typically, one would want to “Reduce churn” by retaining the existing customer base and help wade through the competition. One would also want to “Increase revenue” by increased use of products and services and increase share of wallet and support cross-selling. And overall, one would surely want to “Attract new customers” by an attractive referral program and incentivised marketing program to aid direct walk-ins.

A loyalty program would have 3 basic tenets around which it will revolve – Transact – Transact and capture all the transactions that a customer would do; Earn – Earn loyalty benefits or loyalty points based on the nature of the transaction; and Transaction more & Redeem – Transact more and increase your earnings and then use these earnings or burn these earnings or redeem your earnings against certain set of benefits, both financial and non-financial.

A loyalty program would also give you a chance to drive a desirable customer behaviour and test and create opportunities. Let’s take simple customer behaviour, say, “purchase of a new product”, to understand this. A typical “call to action” could be – “Buy Product X and receive Y points”. By such a call to action, you are driving your customers to buy that product. You are enticing them to gain those loyalty benefits by purchasing the product. This not only gives a chance to generate more revenue by sale of a new product, but, also gives a chance to deepen the relationship and increase share of the wallet. Let’s look at similar such scenarios.

Another key desirable customer behaviour is “increase in spending” and you may ask your customers – “Spend X with us within this week and receive Y rewards”. This is a very common strategy to increase spending. At times, banks use it to increase credit card transaction volumes over a short period of time. This gives an opportunity to increase average spending and have a psychological edge, where the customer feels related to the bank. On the similar lines, if you use such a strategy over a longer period of time, it has a potential to change the customer behaviour and further deepen the relationships. It also helps reward long-term relationships, which in turn creates more brand value.

Such a holistic loyalty program can also help banks drive their customers towards low cost channels like internet or mobile banking or ATMs. All that banks need to do is add channel of transaction as a parameter to drive rewards or even disincentive undesirable behaviour. Banks adopting such a strategy have been fairly successful in achieving their objective to move away customers from costly channels and allow them to self serve.

To increase volumes and create recurring sales, banks usually would entice their customers to transact a specific number of times in a specific time period. They would usually say – “Do A of X in Y time to get Z rewards”.  Such strategies can help drive products like bill payments or fund transfers. There are many such strategies which can be adopted to drive desirable customer behaviour and achieve other objectives from a loyalty program.

OROP - is NaMo that foolish?

One Rank One Pension (OROP) has been taking media and political stage for a while in India. It was a sort of clarion call from Narendra Modi (NaMo) during last year's General Elections, where, he committed to OROP and confirmed its application, as the leading PM candidate.

However, its been more than a year - barring a few mentions of commitment towards OROP by PM Modi, Defence Minister Parrikar and a slew of other central ministers, there has been no public confirmation of any sorts which can placate the protesting ex-Armed forces personnel.

There have been many views and arguments on its financial implications and economic sense, especially the fiscal burden on the Central Govtt. Read an article, which said, for all the forces included, at best this could be in the range of INR 25,000 crores. And half of which is already addressed by plugging the LPG subsidy leakage. So 50% is already there, rest can easily be addressed by plugging many such subsidy leakages that the Modi govtt anyway intends to go after aggressively. This surely makes a strong case for its implementation.

Well, the other important aspects would be the long term fiscal effect and challenges that it will bring in, atleast for say next 5-10 years at a minimum and what happens after this demand is met (these protests are now making is like a big demand). How will other forces and govtt departments react to it? They are already rumoured to sit on the periphery and look at the current drama. This will likely snowball into a bigger problem and will be politically fanned as well. How does NaMo handle it?

Now on the current protests, there are reports that these are being politically managed. Knowing that is difficult to be practically implemented and NaMo having committed to it, all political parties are using it as a good canvas to paint their sympathy and empathy picture. Some reports also say that a sr. ex-army officer, close to the grand old party of India was parachuted to lead these protests by RaGa.

Knowing NaMo, he understands the political problems that it can bring in and also the possible political benefits he can reap, he wouldn't ideally let it go thus far. Based on back of the envelope estimates, this currently affects 25-30 million people and NaMo is too sensible a politician to ignore or not understand what does that mean.

My personal sense is that had there not been some serious internal tangles and / or issues with it, it would have been announced by now. Given the media fancy to get to the bottom of everything pertaining NaMo, even they have not been able to figure out the real problem in there. Even the protesting ex-servicemen, after multiple meetings, haven't disclosed anything so far.

There was a rumour that OROP might be announced by NaMo on his Independence Day speech. Which, ofcourse didn't happen. And pat came a tweet from the CM of Delhi - PM should announce OROP on Aug 15. Everyone wants to bake their bread while the flame is strong ;) And ofcourse, the brickbats are for NaMo anyway. And not to mention Congress and others, already playing political games, knowing very well that they have nothing to loose here. NaMo is sitting on a political hot potato, which will hurt him more than taking them far ;)

No one until now knows if it will implemented or not. Or by when it will be implemented. May be, what might be useful for NaMo would be to come out and address everyone on OROP and give a full clean statement on where it is and possibly its timeline for implementation. And most importantly, why its being delayed.