Banks are experiencing a sea change in the competitive landscape from an increasingly fragmented set of nascent fintech competitors and the peloton of “Buy Now, Pay Later” startups and in addition to traditional competition from other banks and new payment competitors such as PayPal. This year alone, almost 3,000 new fintechs have been created; all for the express purpose of taking market share from traditional financial institutions.
The new competitive set wins shares with a 1-2-3 punch. First, they cater to niche consumer verticals, such as “vegan banks” or
formerly incarcerated. Second, they reduce or eliminate fees altogether, including ATM fees, overdraft fees, and other service charges. And third, they offer increasingly attractive rewards for customer retention, loyalty, and acquisition, often shifting nearly all interchange revenue to consumers, and more.
The difficult question is how will banks compete and retain their customers, despite the fragmented landscape? As banks seek to compete with lower fees and richer rewards to retain existing customers (and acquire new ones), they face the risk of reduced revenue per customer; and replacing this lost income is essential.
The good news is that banks have an alternative at their disposal that can be used to both replace this declining fee revenue stream and provide financial rewards to customers, thereby building customer loyalty and increasing share of wallet. This alternative comes in the form of shopping rewards and cash back earned through e-commerce.
Grab shopping rewards
Merchant-funded rewards are nothing new. When a customer makes a purchase online, merchants often pay the referral source a small percentage of the sale (known as rev-share or commission). You’re probably familiar with this model – it’s conventionally known as referral or affiliate marketing. E-commerce brands actually have dedicated affiliate marketing budgets that fund these commissions.
Merchant-funded rewards are one of the most effective tools available to financial institutions looking to increase revenue and create repeat positive interactions for their customers, thereby increasing loyalty. Thanks to the growing penetration of these types of programs, consumers already know (and expect) these benefits.
Fund customer retention and loyalty with online shopping rewards
E-commerce rewards programs are great news for banks because they create a whole new revenue stream, funded entirely by e-commerce merchants’ marketing budgets. Commissions earned by banks effectively become additional “loyalty margin” which they can choose how to “spend” and creatively deploy as rewards to benefit their customers and increase loyalty. And, perhaps best of all… merchant funded purchases reward stacks of income in addition to redemptions and other payment rewards such as points and miles.
In the past, banks have embarked on customer rewards programs such as offer walls and card-linked offers. But these have several drawbacks, including a high level of effort for integration and deployment, and low customer participation. Companies that have launched offer walls and card-linked offers report that only 2% of their customers actually use these programs, largely due to the unnatural detours customers have to take when shopping online to activate these offers.
The modern view of shopping rewards flips the script and meets the customer right where they are in their natural buying journey. Shopping companions for desktop and mobile purchases are designed to present customers with valuable offers, including cashback, coupons and discounts, at critical touchpoints during their shopping journey typical line. This is accomplished through tools including desktop browser extensions, mobile app functionality, and search engine integrations that intelligently alert the customer to cashback opportunities, coupons, and related offers at the right time in feeds. user’s online purchase, without making detours or unnatural steps. to activate and take advantage of the offers.
Forward-thinking leaders in this industry are already leveraging these platforms. Consider Capital One, whose Capital One Shopping browser extension spun off from the 2014 acquisition of Wikibuy and has millions of users, and Honey, which was acquired in 2019 by PayPal with over 17 million users. . While Capital One and PayPal have chosen to buy and build their programs, others have chosen to partner with white-label vendors, which allows for rapid time-to-market, superior feature sets, and lower costs. For example, Acorns offers a similar program, powered by our platform, which allows Acorns users to earn money by making online purchases at thousands of merchants, which are then deposited into their accounts. investment. These companies are creatively using their online shopping companions to guide their users through their e-commerce journeys, thereby rewarding customers and building loyalty, while earning substantial revenue from merchant-funded commissions.
Deploying these tools is simple. First, the bank provides and markets shopping companions to its customers, who simply activate the feature in the bank’s app or add the browser extension to their desktop, and then they shop normally. The companion alerts the customer whenever benefits are available and with a single click, customers activate cashback or coupons. There are no accounts to open, no credit checks and no card linking, and the consumer immediately starts earning cash or other rewards for their purchases, brought to them by their bank.
The bank receives a commission from the merchant, and then the bank pays the customer a portion of that commission as a reward for using their shopping tool. Essentially, the bank taps into the affiliate marketing budgets of e-commerce merchants to fund their loyalty, retention (and in some cases customer acquisition) programs.
Online shopping rewards programs are a rare example of a win-win scenario. Customers earn through shopping rewards and discounts. Banks win with increased revenue, as well as customer retention by positioning themselves as the benefactor of tangible customer benefits. And merchants win through the higher conversion rates, increased average order value, and lower cart abandonment rates that these programs consistently deliver.
Because these shopping companions are tied to the user and their device(s) rather than their card, the rewards are “neutral”, meaning banks and their customers can earn rewards regardless of the offer used, which opens up a wider opportunity. to provide benefits to cardholders and cardless banking customers.
E-commerce rewards programs leveraging shopping companions are also helping banks break free from their traditional place in the “back office” of consumers’ lives, putting banks at the forefront of customer benefits. In effect, purchase rewards programs transform the otherwise transactional nature of customers’ association with their bank into a more interactive relationship relevant to customers’ financial well-being.
With such programs, banks not only create new sources of revenue, but also reinforce in the minds of customers that their bank is a partner, helping them to improve their financial well-being, in all aspects of their business. life.