The concept of bank-wide loyalty, where customers earn
rewards for holding a range of accounts within the same financial
institution, is rapidly gaining traction worldwide, with banks
realising that it is easier to retain and reward existing customers
than recruit new ones. Victoria


In the payment card space, loyalty has become a hot topic
recently, although there are many definitions of what loyalty means
to consumers and to banks. Certainly, one idiom seems to be true,
in that the more links a customer has to a financial institution,
the less likely they are to defect to a rival institution. As such,
the concept of bank-wide loyalty, which sprang directly out of card
loyalty programmes, is something that is gaining more attention
from product managers and technology vendors.

According to Kelly Hlavinka, a partner at
loyalty consultancy Colloquy, “just a few years ago, the industry
regularly talked about how 50 percent of all credit cards had
reward programmes tied in. Today, estimates range from 75 percent
to 80 percent. For debit cards, 2006 estimates were 10 percent to
15 percent, but the latest industry analyses put the numbers at 25
percent to 50 percent due to the explosion of merchant-funded
network programmes.”

For banks, the business case is clear.
Customer loyalty is driven by the need to retain existing
customers, given that it is less costly to retain an existing
customer than to market to and recruit a new customer. But the
concept of loyalty is also changing shape as banks look to adapt to
tumultuous economic times and shifting consumer preferences.

Banks recognise that by rewarding customers
for holding a variety of financial products within the same
institution, they not only foster increased transactional volumes,
but also a greater level of trust on the consumer’s part – which
means the customer is less likely to leave the bank. It is four
times more expensive to acquire a new banking customer than to
increase product relationships with an existing one.

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Sebastien Slim, vice-president of global
pre-sales and product marketing at European loyalty technology
vendor Welcome Real-time, says that over the past year, as
consumers have reined in their expenditure, banks have begun to pay
more attention to bank-wide loyalty.

“It’s clearly a trend that we saw in the
market from around a year and a half ago,” he told CI. “We didn’t
have many banks talking to us about bank-wide loyalty before, but
in the last 12 months, it is really something that has been gaining

However, the concept of bank-wide loyalty is
not new, having first emerged at the turn of the decade. One of the
longest-running programmes is Citi’s ‘Thank You’ proposition, which
recently celebrated its fifth anniversary, having accumulated 13
million members worldwide.

The programme started as a loyalty scheme for
Citi’s cardholders but was then widened to include Citi’s entire
retail banking offerings, including current accounts, savings
accounts, card products, loans and mortgages. Thank You members are
rewarded with additional points based on their account package and
the number of Citi products they hold.

According to the bank, the current economic
downturn has spurred interest in the programme, with members using
their points for a range of practical rewards, such as statement
credits and cash as well as the latest option to pay off student
loan payments and mortgages.

The attrition rate of customers in Thank You
is one-fifth that of non-customers, and customers enrolled own 20
percent more products.

Debit cards take centre

A notable trend over the past three
years is the growing number of banks which have rolled out current
or checking accounts linked to a savings account, which round up
consumers’ debit card purchases to the nearest dollar and then
automatically deposit the difference into the linked savings
account, thereby boosting debit card usage and the opening of other
accounts at the same financial institution.

In this way, it is the debit card that is
being used as the primary marketing tool by banks, instead of the
wider features of the current account itself.

Bank of America’s ‘Keep the Change’ programme
is one of the best-known examples, with over 8 million enrolled
customers as of 2008, and other banks such as Scotiabank in Canada
and Lloyds TSB of the UK have rolled out similar propositions.
Scotiabank’s ‘Bank the Rest’ programme was launched in April 2008 –
by October of that year, it had recruited over 100,000

There are several benefits to the bank in
offering these kinds of programmes. Obviously, every debit card
purchase garners interchange revenue, and because consumers are
incentivised to use their debit cards more often and boost their
savings, the bank will see greater transaction volume.

Because transactions are rounded up to the
nearest dollar, and the difference between that and the actual
purchase amount is transferred to the linked savings account, the
bank charges the nearest dollar amount, thereby pushing up
interchange revenue further still.

For example, in the Keep the Change programme,
a cardholder makes a debit card purchase of $4.50. BofA then rounds
up the difference to the nearest dollar and transfers $0.50 to the
linked savings account. But the cardholder is charged the full
amount of $5.00.

However, BofA also puts in place certain
conditions on the linked savings account, such as requiring a
minimum opening balance of $25. If the cardholder does not make an
automatic minimum monthly deposit of $25 into the savings account,
they are subject to a $5 monthly service fee.

There is also a $3 charge per withdrawal from
the savings account if withdrawals exceed 3 per month or if the
minimum savings balance is less than $2,500.

So not only do such programmes increase debit
card usage and volume, they also help to bring in greater deposit
and savings volumes for the bank, and the bank can also benefit
from the fees associated with those services.

Reaching underpenetrated

Many of the bank-wide loyalty
schemes in operation have been focused mainly on mass-market
consumers who tend to be very frequent users of both credit and
debit cards. But there remain some underpenetrated segments,
particularly when it comes to debit card usage, most notably high
net worth individuals.

According to MasterCard, those who earn over
$75,000 a year are the least active debit card users, instead
preferring credit cards with high-end loyalty programmes.

With this in mind, MasterCard has teamed up
with Fifth Third Bank in the US to launch a ‘World’-branded debit
card aimed at affluent consumers. The proposition is unique in that
it combines the bank-wide loyalty concept with merchant-funded

World Debit MasterCard cardholders are
eligible for exclusive rewards offerings, including a rewards point
programme, and premium access to the MasterCard Savings programme
which provides US consumer debit and prepaid MasterCard cardholders
with merchant-funded discounts and special offers from thousands of
merchants across the US.

The card is positioned as a key feature of
Fifth Third Bank’s ‘Rewards Checking’ package, offering customers
reward points for their everyday banking activity, including debit
card purchases and direct deposits to their checking account.

According to Slim, the current economic
climate has spurred interest by banks in merchant-funded programmes
as they look to cut costs and share the risks.

“We even met with one client prospect who told
us that it was the best time for them to implement a rewards
system, because the merchants are really looking for ways to
encourage people to make return visits to their stores. Doing a
loyalty programme in these times is really something that they were
ready to implement to make sure people are more incentivised to
coming back to their stores,” he told CI.


“There are some customers where the basis of
their platform was really for the merchant to create and offer
their own rewards, together with and on top of the bank’s own
rewards, and there are some schemes that are more

“In those cases, getting the merchants funding
the rewards is more difficult. But if you take the example of PBZ
in Croatia, which is one of our customers, they set up a platform
that is not running their own issuer loyalty scheme, but more for
the merchant to create their own campaigns and by definition
funding the rewards they are giving to their customers.”

Expanding loyalty in other

To capitalise on the interest in
bank-wide loyalty, Welcome Real-time recently released an updated
version of its loyalty solution XLS, which is in use by several
banks around the world. With XLS 7.0, Slim says, “the bank can now
have the capability to reward the customer not only for their card
transaction but for any transaction between the bank and the
customer, be it loans or mortgages or deposits.

“This version now offers the capability to
process transactions offline at the POS, or online on our server,”
he continued.

“One of the key benefits of processing
transactions online is that we can now enter in new areas such as
e-commerce. If you take the example of Virgin Megastore; as a
retailer they have both a physical and a virtual store. For them,
we can define a campaign across both stores that works together at
the same time at the physical store level as well as on the
internet store level.”

However, there are characteristics of card
usage that require a different approach, even when they are part of
a bank-wide loyalty programme.

Slim said: “There is the notion of instant
rewards which you don’t necessarily have when you do bank-wide
loyalty. If you take one bank that is willing to implement a card
loyalty programme and a bank-wide loyalty programme, will it be the
same reward scheme or two separate reward schemes at the end of the

“We started with what we now call a card
loyalty system, and we are now moving into the bank-wide loyalty
system. Will they be two separate offers? We don’t know but
nevertheless, we are now capable of rewarding customers for their
entire relationship with the bank – not only their card
transactions. That’s what we have been doing over the past few

According to Slim, there is the possibility
that the concept of bank-wide loyalty could be stretched even
further to encompass sector-wide loyalty.

“Something that we are working actively on is
moving from the banking segment to the retail segments, and we are
now developing a retail solution,” he says.

“We are still focusing on the ‘instant reward’
concept, but the main difference being that if you speak with the
banks, everything they want is to reward the customer but only when
they are using their specific card, whereas if you look at the
retail side, basically they want to reward the customer for any of
their payments means, even including payment by cash.

“Lastly, we are starting to see some interest
for some sectors like the telecom or mobile segment where we could
bring a solution soon.”

Relationship reward schemes