The banking industry is getting more competitive with each passing day. Each American possesses an average of five bank accounts, often seeking better terms and deals. Amidst these scenarios, banks resort to various strategies to retain customers, a prominent one being the implementation of loyalty programs.
Deploying effective customer retention strategies can help institutions stand out in a crowded marketplace and foster a loyal customer base. Of these strategies, offering customer loyalty programs has proven to be substantially effective.
This guide reveals how a powerful bank loyalty program can help foster customer loyalty and intensify customer retention.
What is a bank loyalty program?
Bank loyalty programs encourage patrons to keep using a bank’s services by offering rewards and incentives in exchange for their continued patronage. These programs extend rewards based on someone’s bank account, debit card, or credit card usage.
The exact reward system, including actions rewarded, can vary from one bank to another based on individual policies and customer preferences. Depending on the loyalty program’s structure, clients can earn various rewards, ranging from cash back, to discounted shopping deals, to loyalty points, to even a lower interest rate on credit.
The origins of bank loyalty programs
In an era dominated by cut-throat competition, the banking sector has much more to offer than basic access to diverse account options or competitive interest rates. Bank loyalty programs can bestow banks with a definitive edge in attracting prospective clients and appeasing existing ones.
Bank loyalty programs were initially devised as an appreciation gesture to extend to the bank’s loyal customers. However, with the emergence of fierce competition, these rewards programs soon evolved into an essential ingredient to maintain and boost customer retention.
Key elements of bank loyalty programs
With an assortment of incentives like shopping discounts, cashback schemes, or lower interest credits, banks can appeal to a wider section of potential customers. Other attractive incentives might include free ATM withdrawals and swiping privileges offered to savings account holders or credit card users.
Generally, these features aim to inspire customers to use the bank’s services regularly, thereby promoting a stronger relationship between the bank and its customers. To a large extent, the features offered correspond to the customers’ expectations and requirements, hence cementing a solid basis for enhanced customer loyalty.
Benefits of bank loyalty programs
Loyalty programs offer leverage to banks in various ways, the most significant among them being a considerable boost in customer satisfaction. Other multifaceted benefits that banks can reap through loyalty programs include:
- Increased customer engagement leading to enhanced financial turnovers.
- Cementing long-term relationships with customers.
- Boosted customer lifetime value through customer retention and increased account usage.
- Incorporating analytic software with loyalty programs can yield valuable insights into customer behavior and account usage.
- By valuing their loyalty, banks can bolster customer satisfaction, drive greater engagement and uplift brand reputation.
- Promotion of word-of-mouth marketing as happy customers are likely to recommend the bank to their acquaintances.
Beyond customer satisfaction and retention, loyalty programs can also create a dramatic surge in a bank’s revenue. Research demonstrates that customers enrolled in loyalty programs generate 12-18% incremental revenue growth per year compared to non-members. Moreover, higher-tier loyalty members, usually comprising the top 10% of a bank’s customers, can deliver up to 80% of a firm’s total revenue. This starkly underlines the critical role loyalty programs play in boosting a bank’s financial prospects.
Implementing bank loyalty programs: Best practices
If you’d like to start a bank loyalty program, you’ll need to consider several factors. Implementing bank loyalty programs represents a considerable undertaking that requires a strategized approach. Successful loyalty programs are those that provide value to customers and align with the bank’s objectives.
Define clear goals
Goal setting tops the chart of priorities when implementing bank loyalty programs. Identifying the primary purpose of the program will enable strategic planning. Is it to bolster revenue, stimulate customer interaction, or augment brand visibility? Once the goals are clear, it becomes easier to structure the programs accordingly.
This is also an opportunity to review your bank’s core strengths and resources and how you can utilize them in the design of your loyalty program. Essentially, whether a loyalty program ultimately succeeds depends greatly on how well its composition complements the bank’s short-term and long-term objectives.
To determine the direction of your program, ask these questions:
- How will you measure your program’s success (ex. Increase in the number or percentage of active account users? Increase in average purchase frequency using a credit card?)
- What activities do you want to reward to help you reach these goals (credit card use? Account deposits? Bill paying? Keeping more money in the account?)
Select appropriate rewards
Selecting customer-relevant rewards can play a pivotal role in making the loyalty program successful. Existing and new customers can be treated with different perks. A personalised reward system, keeping in mind the spending patterns of customers, can enhance the customer experience and satisfaction levels.
This necessitates deep-dive analysis of customer expectations, interests, and habits. Through extensive data analytics, banks can decipher key insights into consumer behavior and use this information to design rewarding mechanisms that resonate with their customers.
It’s vital to strike a balance between offering attractive rewards and keeping the program sustainable for your business. Consider tier-based rewards and points-based rewards structures, to encourage more interaction with the bank and to tie the value of the reward to increased loyalty.
Cash back is the most common bank loyalty reward, since your bank offers monetary services. It can help customers reach their savings goals with your savings account – or encourage them to spend even more using your credit or debit card. But you don’t have to offer cash rewards alone (or at all). Think about using non-monetary rewards that bank patrons would want to earn, such as event tickets or travel rewards.
Ensure easy usage and accessibility
Loyalty programs should be easy to access and the rewards should be easy to redeem for customers. Enhancing customer experience through a dedicated mobile application showcasing reward status, account balance, and redemption options can be a plus. You might also implement mobile alerts to inform customers about their loyalty rewards status, or to share limited-time bonuses that keep customers engaged. Your goal should be to create an omnichannel experience that rewards customers anywhere and anytime they use your services.
A seamless user experience culminates in higher customer engagement. Therefore, the navigation through the program should be intuitive, straightforward, and hassle-free. A complicated or confusing user interface can deter customers from participating fully in the loyalty program, regardless of the allure of the offered rewards. Create an FAQ to answer common questions. And be sure to prepare your customer service team to answer queries and resolve issues related to the loyalty program that the FAQ doesn’t cover.
Whichever rewards you choose, be sure to set clear, achievable goals for customers to attain these rewards. In addition, regularly review and adjust reward parameters based on patron engagement and feedback, and share any updates or changes you make with customers.
Improve the program based on data analysis
For the continual success of bank loyalty programs, regular improvements and adaptations are quintessential. Detailed data analysis that brings out customer behaviour trends and problem areas should be used to tweak loyalty programs.
Employing a continuous learning approach to analyze customer feedback can aid banks in making the necessary adjustments in their loyalty programs. This not only improves the effectiveness of the program but also keeps it relevant in the face of rapidly changing customer preferences and expectations.
Loyalty program software can help you identify and act on program data trends.
Bank loyalty program success stories
Several banking institutions have successfully implemented loyalty programs to win over customers and retain existing ones. Some noteworthy examples include:
Capital One introduced the Purchase Eraser program which allows customers to “erase” purchases (including travel-related purchases) by accumulating points, a popular program that has received positive public feedback.
The Wells Fargo Rewards system rewards customers based on their loyalty towards the brand. Customers can redeem rewards towards travel, cover immediate or previous purchases, send gift cards, or add cash to their account. Despite the costs incurred by the bank, the program effectively retains customers.
Bank referral programs: Going a step further
Although a bank loyalty program can bring a wealth of benefits when done right, a bank referral program might be a better fit. After all, bank referral programs offer unique advantages that bank loyalty programs don’t bring.
Bank loyalty programs encourage customer retention but don’t help you bring in new customers. Meanwhile, bank referral programs help with both retention and new customer acquisition. Bank referral programs take loyal clients one step further, by turning them into reliable advocates.
And since bank referral programs give out rewards when customers bring you new banking customers, these rewards encourage your existing customers to stay loyal. Plus, customers brought in through bank referral programs tend to be most loyal, so a loyalty element is built into referral programs.
Want to take a deep dive into bank referral programs and see how they can kick your customer loyalty up a notch? We’ve got you covered.
Key takeaways
Bank loyalty programs pack the potential to enhance customer retention and attract new clients. Great attention to detail, incisive strategy, and staying abreast of the latest trends can help banks stay ahead in a fiercely competitive arena.
With their ability to foster loyalty, promote engagement, boost customer satisfaction, and enhance revenue, loyalty programs can form an integral part of a bank’s customer retention strategy. If you want a way to promote customer loyalty and simultaneously gain new customers, though, a bank referral program will be a better fit.
