The UK credit card loyalty market, which has been in a
state of stagnation over the past few years, is set to be shaken up
with the launch of Barclaycard’s Freedom scheme, available to over
eight million cardholders and encompassing over 30,000 merchants in
a range of sectors. Victoria
Conroy
reports.

 

Barclaycard’s Freedom scheme will be
launched in the UK in March, and is being lauded as the broadest
retail rewards scheme in the marketplace. Over eight million
cardholders will be able to earn rewards on every purchase in over
30,000 merchant outlets who have been invited to participate in the
scheme, including small, medium and large merchants across a range
of sectors including shops, restaurants and online outlets.

Although loyalty programmes are
long-established in the UK, the saturated state of the UK credit
card market means it is becoming harder for issuers to tempt new
(and indeed existing) cardholders into sign up for a loyalty
card.

The glut of rewards programmes on offer
undoubtedly helped to boost usage of credit cards through most of
the 1990s and into the beginning of this decade, but as figures
show, the UK credit card market has been in decline for some time.
This has had the knock-on effect of hitting the loyalty market as
well, alongside rising funding costs for loyalty programmes and
issuers seeing their profits shrink in response to the economic
turbulence of the past two years.

A study from financial information group
Defaqto found there has been a fall in the number of cards offering
shopping rewards, which give users discounts when they buy goods
and services from certain retailers, with these dropping from 45
percent of all credit cards in 2005 to 31 percent as of 2009.

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By GlobalData

The number of credit cards offering cashback
rewards has also fallen sharply during the past five years, and now
only 1-in-20 credit cards currently enables users to earn cash on
the transactions they make, down from more than a quarter of all
cards in 2005.

At the same time, the cashback reward schemes
that are available have become increasingly complicated, often
offering higher returns during an introductory period and different
rates depending on how much is spent each year.

UK

Credit card statistics

 

2004

2005

2006

2007

2008

Number of credit cards in issue (m)

69.88

69.85

69.52

67.31

66.16

Value of credit card transactions (€bn)

162

161

158

166

143

Source: European Central Bank, CI

Creating long-lasting
loyalty

The Defaqto study illustrates the
problem of many loyalty programme providers finding it increasingly
difficult to engage customers and motivate them into wanting to
earn rewards.

And it is this consumer apathy that stands in
stark contrast to the overriding reason that many loyalty
programmes were established in the first place – that of
influencing and changing consumer behaviour to use their cards more
often for a greater range of purchases, thereby accruing more
rewards.

It is becoming increasingly clear that loyalty
programmes need to be tailored to the customer’s purchasing
behaviour in order to incentivise them to earn rewards, and the
advent of EMV technology is helping issuers to utilise card chips
as a way to store transaction behaviour and reward data.

Sebastian SlimBarclaycard’s
Freedom scheme is unique in that it enables cardholders to redeem
rewards instantly at the POS instead of having to physically
accumulate vouchers and coupons or calculate rewards levels. The
scheme also brings into the loyalty fold many small and medium-size
merchants who have typically been excluded from participating in
loyalty programmes because of cost and logistical
considerations.

Barclaycard cardholders will automatically
earn rewards, called ‘Reward Money’, when they use their
Barclaycard at a participating retailer – 1 percent on most
transactions alongside regular special promotions and giveaways.
After a transaction takes place the cardholder will usually see
their new Reward Money balance on the card machine.

Next time they use their card in a
participating retailer they will see the value of their Reward
Money balance appear on the card machine before they enter their
PIN to pay. They can then choose to redeem some or all of their
Reward Money towards that transaction or to continue to save up for
a future purchase at another retailer within the scheme. In
addition, participating merchants will be able to offer cardholders
special promotions and giveaways.

Barclaycard Freedom managing director Sarah
Newman said: “The breadth of Barclaycard Freedom offers customers
the chance to earn Reward Money when they do their weekly shop, go
out for a meal or shop online.

“Barclaycard Freedom offers our cardholders
something for nothing on top of the benefits they already receive.
Offering special offers and additional giveaways, on top of the
steady rate on all purchases, is a novel way of rewarding the
loyalty of customers using the scheme.

“By offering the chance for small and medium
retailers to join a scheme with major UK brands, Barclaycard
Freedom is supporting the high street at a time of very difficult
trading conditions,” she added.

EMV technology brings real-time
rewards

Barclaycard has partnered with
European loyalty solution provider Welcome Real-time for the launch
of Freedom, with the technology platform utilising the EMV chip in
each card to store rewards and redemption data. Welcome Real-time’s
XLS solution enables loyalty programme providers to run real-time
marketing and loyalty programmes and to reward customers instantly
at the point of sale.

Sebastien Slim, vice-president of global
pre-sales and product marketing at Welcome Real-time, told CI that
the scheme offers a number of benefits to both cardholder and
merchant.

“The Barclaycard Freedom programme that is
being launched is a typical implementation of Welcome Real-time’s
solution for extended loyalty schemes,” Slim said.

“We have implemented a piece of software on
each POS terminal, and a piece of software on the server.

barclaycard freedom

“The benefit that we are providing to
Barclaycard is that the technology works with any existing card, so
there is no need to reissue any cards or no need for the cardholder
to have an additional loyalty card. It is really combining the
payment and loyalty functionalities into a single card.

“Part of Barclaycard’s value proposition is
that they will be able to address small, medium and large retailers
and also internet-based retailers, and again our software allows
them to do this.”

Although Welcome Real-time’s technology can
offer merchants the ability to reward cardholders with a range of
rewards options including points, coupons and real-time messaging,
Barclaycard Freedom will be a cashback-based programme.

“We have implemented a number of projects in
the past with this kind of cashback scheme, and they have been very
successful,” Slim told CI.

“One of the key benefits for Barclaycard
customers is that they will benefit from cashback on every
transaction they make. Our software also has the capacity to allow
the merchants to give additional percentages of cashback if they
choose. For example, based on the type of retailer participating in
the scheme, they can give additional cashback, and they can also
run promotions around particular dates or events, running for
example, special offers on Valentine’s Day or other special
days.

“One of the key features, and this alludes to
our name Welcome Real-time, is that everything happens in real time
at the moment of payment,” Slim added.

“As well as customers getting a regular
receipt where you see the merchant’s regular thank you message,
customers will also be informed about their Barclaycard Reward
Money balance, what they have been earning, and how they can redeem
their rewards for that transaction.”

The concept of merchant-funded rewards is one
that is gaining traction worldwide as issuers seek to differentiate
their loyalty offerings and expand their availability to a greater
pool of merchants. For merchants, the benefits of participating in
such schemes include greater footfall and a greater share of card
payments. However, when it comes to funding the rewards available
through schemes such as these, it is very much a decision for the
issuer and the merchant.

“Some of them will be funding rewards in part.
Of course, we anticipate that the additional percentage that will
be given to the customers will be funded by the retailers,” Slim
told CI.

According to Barclaycard, on average there
will be 200 retailers within five miles of where a cardholder
lives, giving the scheme an unprecedented scale. For participating
merchants, this means that there will be on average 75,000
Barclaycard cardholders within five miles.

The first merchants that have signed up to
Freedom are fitness and leisure chain LA Fitness, sushi chain YO!
Sushi, online retailer Firebox, national car mechanic chain
Nationwide Autocentres, and jewellery chain Goldsmiths.

Future-proofing loyalty
redemption

Although the Freedom proposition is
aimed at rewarding customers at the POS, Slim explains that the
technology behind the scheme can be integrated into other
customer-bank interaction channels.

“One of the other channels that will be
supported is internet payments,” he said.

“One of the benefits of our solution is it can
reward any type of payment, meaning that if tomorrow Barclaycard
decides to reward mobile payments, contactless or debit card
payments, our software will be able to support these other types of
payments as well.”

Certainly, Barclaycard has the financial clout
and merchant acquiring strength to support its Freedom proposition.
As of August 2009 the issuer had over 11.9 million customers in the
UK and more than 88,000 retailer and merchant partnerships.

And Barclaycard Freedom is being launched with
much fanfare with a major TV, online and print campaign to support
it, and cardholders will also be able to find the location of
participating retailers on the website
www.barclaycardfreedom.co.uk.

The sheer size of Barclaycard, and its
position within the UK credit card market (the largest in Europe)
means that the launch of Freedom will be the largest scheme of its
kind in the marketplace, not just for Barclaycard but for Welcome
Real-time too.

“Barclaycard is obviously one of the biggest
issuers in Europe and is a key reference for us,” Slim told CI.

“Nevertheless we have had a lot of successful
implementations in Europe. For example, we have worked with Akbank
in Turkey when they were launching their Access programme, which
was competing with Garanti’s Bonus scheme.

“We also have customers running very
successful schemes in Greece – one is Alphabank, and the other is
National Bank of Greece. We have a programme running in Croatia
with PBZ Card, and also a programme in Slovenia, and in Iceland. So
we have a lot of references in Europe.

“The difference with Barclaycard is that
although the technology is the same, and the type of programme is
very similar because we are always working in real time loyalty,
Barclaycard is clearly part of one of the largest banks in Europe
and are looking to launch on a much larger scale – with eight
million cards and 30,000 retailers. That is what makes this
programme stand out.

“Obviously just in terms of credit card
markets, the UK is a leading market in Europe together with Turkey,
so I certainly think that this implementation will make all the
difference in Europe.”