In an age when consumers have limitless options for what to buy and how to buy it, the concept of customer loyalty would seem at risk of taking the back seat to convenience and caprice. However, cardholder loyalty still means a great deal to financial institutions, and there are effective ways to adapt to the modern marketplace and entice consumers to prioritize some cards over others.
To learn more about how financial institutions can maintain and enhance cardholder loyalty, PaymentsJournal sat down with Mandar Mangalvedhekar, VP of Digital Product Management at Fiserv, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.
Cardholder loyalty means more than just rewards
When people think of cardholder loyalty, they tend to think about what sort of rewards a card might offer, such as points, cash back, airline miles, or other perks. However, the idea of building customer loyalty runs much deeper and broader than that. “It’s all about driving engagement between the issuers and their consumers,” said Mangalvedhekar. “And it starts, actually, from the moment the consumers sign up for an account.”
As soon as a cardholder begins their relationship with an issuer, the financial institution (FI) has an opportunity to gather information about consumer behavior. Online, mobile, and digital channels have all increased, in part because of the COVID-19 pandemic. Those channels lead to more options for consumers and more data that is accessible for FIs. “There are more products, more ways of utilizing those products, and more ways of accessing those products than ever before,” noted Grotta.
Financial institutions will find that there are significant generational differences in consumer patterns. Different consumer segments have different relationships with their issuers, and Gen Z in particular tends to develop relationships with multiple issuers and fintechs. “To Gen X, debit rewards are not particularly motivating, but they may be very motivating to somebody in the Gen Z category,” Grotta pointed out. The use of digital currency is also concentrated heavily among younger populations.
“When issuers think about loyalty,” Mangalvedhekar said, “the key question in my mind is: Are they able to offer personalized experiences across all the channels to drive engagement and growth?”
What this means for primary financial institutions
“Issuers need to invest time and money for continuous learning of consumer preferences,” said Mangalvedhekar. Starting from the initial interaction, FIs should be tailoring experiences to offer the best-in-class personalized services for their cardholders. This can start with integrating digital experiences during card activation, and continuously providing visibility and tools through online and mobile channels to keep issuer products at top of mind. Digital issuance, for example, has tremendous potential to tap into myriad digital experiences, including card-on-file, which benefits both consumers and FIs.
Rewards are not to be dismissed and are best implemented using a targeted approach, not just throwing deals and prizes at the wall and seeing what sticks. “Financial institutions need to understand consumer preferences,” Mangalvedhekar explained. “What actions I do, and how I, as a consumer, can be engaged.” This will provide the best opportunity to incentivize consumers to take different actions by rewarding certain behaviors.
Building on that, Mangalvedhekar added: “I think issuers must use analytics to discover trends and anomalies, segment the consumers, and do benchmarking vs. competitors.” Analytics are a great way for issuers to identify opportunities to drive engagement and growth.
How issuers can tell if their consumer relationships are at risk
According to Mangalvedhekar, the most important strategy for FIs is monthly spend tracking – and not just total dollars spent, but in which specific merchant categories the cardholder used the card. He gave an example: “If the consumer had an issuer’s card on file with Netflix for the last few months, and the issuer is seeing a recurring transaction from Netflix, and then they don’t see that recurring transaction, does this mean that the consumer has stopped using Netflix? I would say most likely not. It is likely that the consumer is now using some other card.” Monthly spend tracking of this sort provides insight into what is happening in terms of consumer engagement with the portfolio.
It is also crucial to ensure that issuers are leveraging online and mobile channels. If FIs do not invest in digital interactions such as P2P, bill pay, credit score tracking, and others, consumers will look to fintechs to meet those needs elsewhere. “As the mindshare shifts to other issuers, I think it’s hard to re-engage those consumers,” noted Mangalvedhekar. Similarly, if cardholders are not activating their rewards, there is a good chance they are using other cards instead.
Keeping track of all of these metrics is vital for maintaining customer loyalty. Card ExpertSM is an on-demand business intelligence solution from Fiserv that provides card issuers with the opportunities they need to deepen consumer relationships and grow their business. “[Card Expert] actually compiles your debit and credit data from multiple sources,” Mangalvedhekar clarified. “This provides the insights to understand cardholder behavior so that issuers can actually execute targeted marketing campaigns and drive engagement.”
Capturing the majority share of spend
The bottom line for FIs is to put consumer needs at the center of their strategy. “The next generation of consumers are digital natives,” Mangalvedhekar explained. “And everyone now across generations expects personalized experiences. So, issuers need to offer meaningful interactions and every consumer journey must be digitized.”
Another Fiserv product called CardHub offers a single place for cardholders to get, use, and manage credit and debit cards. This solution empowers cardholders to control their cards, clearly see spending, and use cards more easily. “The CardHub solution encompasses the entire life cycle of the consumer,” summarized Mangalvedhekar. One other action issuers can take is to support all digital channels and offer a variety of products to support all different wallets, consumer segments, and preferences. “Engaging the consumers at the right time via the right channel is extremely critical to drive engagement and loyalty.”
Emphasis on the word right. “Providing a reward that doesn’t make sense for my spending habits really falls flat and has the potential to do more damage than create the good will that it’s intended to do,” said Grotta. In order to really push that personalization and flexibility, Fiserv also offers its uChoose Rewards loyalty program, available for both debit and credit cards. “When you choose rewards, you can select the type of program that matches your objectives and preferences,” said Mangalvedhekar. “You can have merchant-funded offers, issuer-funded offers, or a blend of the two.”
He concluded: “In summary, issuers must understand cardholder behavior, offer best-in-class experiences, and drive engagement and loyalty to get the share of spend.”