Banks are increasingly using rewards and loyalty programs as a tool for maintaining relationships with top-end customers because these relationships provide high potential for revenue generation, according to a new study from RnRMarketResearch.com.

Financial institutions are putting forward premium experiences and offers to increase loyalty and develop deeper banking relationships, the study reveals. Rightly positioned, unique rewards act as a key differentiator in a highly commoditized financial services market.

To remain profitable, the study shows, banks have been making changes to their strategies and operational models, which include finding the optimum mix of funding options and reward offerings to achieve greater levels of customer loyalty and profitability. Both issuers and card schemes are partnering with airlines, hotels, and popular brands to offer merchant-funded rewards. The strategy allows card issuers to improve the value of their reward credit cards without putting upward pressure on costs.

Consumers are traveling more than ever, the study shows, and forecasts for outbound trips indicate that this trend will continue over the next five years in key economies. Consequently, card issuers and schemes offer credit cards that focus on travel benefits to increase customer retention and attract new customers. Travel credit card customers are often offered lounge access at airports, free or heavily discounted air tickets, preferential treatment at hotels and resorts, free valet parking, discounted limousine services, and insurance cover that ranges from travel accident to lost and delayed baggage, to trip cancellation.

There is increased investment in customer engagement strategies, the study says. Schemes and issuers are offering personal concierge services on their top-end credit cards, or access to exclusive events to differentiate their products. Issuers are also expanding their presence on social media and mobile platforms through various apps to drive brand loyalty. The increasing popularity of social media and smartphones also allows card issuers opportunities to enhance their marketing efforts while keeping costs low.

Here are some more fascinating takeaways from the study:

·       Consumers are moving away from conspicuous consumption to more considered consumption, and access to special or unique experiences through their card has gained importance. In this altered environment, banks and other card issuers are adopting various strategies to decrease operating costs and increase revenue potential. 

·       Banks and other card issuers are increasingly focusing on credit cards designed to target mass affluent consumers driven by the relatively high profitability offered by this segment. At times, banks may run the cards at a loss, but benefit from the rest of their relationships with clients through deposits, investments, savings, mortgages, and asset and wealth management, among others. 

·       Card issuers have increased their focus on issuing credit cards with travel benefits. Many issuers across the world, including Bank of America, Chase, Citibank, HSBC, Commonwealth Bank, Lloyds, Capital One, Hyundai Cards, Samsung Cards and Amex, among others, issue premium cards which specifically focus on travel-related services. 

·       Banks and other card issuers are expanding their operations on social networks through partnerships with merchants such as retailers, restaurants, leisure centers and travel operators. The partnerships provide opportunities to engage customers through additional content, offers and discounts. These expansionary moves are driven by a desire to improve consumer offerings and increase revenues. 

·       Bank-funded reward and loyalty programs have increased cost burdens for issuers. Banks and card issuers have introduced similar loyalty programs which have become almost indistinguishable. This has compelled banks to carry out other expensive promotional initiatives to set themselves apart. Consequently, issuers are moving towards merchant-funded loyalty programs to lower their operating costs. 

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