Loyalty programs for banks: Are they dead or just evolving?

But evidence suggests that these programs are losing their effectiveness in the DACH region - 77% of transaction-based loyalty programs fail within their first two years, and research shows that the positive effects of rewards on customer loyalty are actually 60% lower than companies estimate. This mirrors challenges in the retail industry, where even historically strong programmes like Cumulus in Switzerland are starting to struggle. It begs the question: why are customers less interested? (Read on to find out…)

The decline in loyalty program engagement is prompting card issuers to reconsider where to invest their money, with a growing focus on digital engagement as a more effective way to attract and retain

In Switzerland, the average person is signed up to 4-5 different loyalty programs. But while this shows how successful loyalty programs have been, its own success is becoming a problem - when consumers are so used to collecting points wherever they go, the rewards no longer feel special. And this is making it harder for new loyalty programs to stand out. There are other downsides too...

At the same time that loyalty cards are becoming more difficult for banks to extract value from, customers are becoming more concerned with privacy - globally, 68% of consumers say they’re concerned about their privacy online. With customers becoming increasingly wary of how their data is being used, banks may start finding it more challenging to encourage them to sign up for loyalty programs that track their spending habits.

Finally, unredeemed points are another issue that many loyalty card providers are increasingly having to grapple with. In Switzerland, Migros Cumulus is the most successful grocery loyalty program, with around 2.8 million subscribers (covering an impressive 75-80% of Swiss households). Despite driving 65% of all Migros retail sales, it faces the same challenges as its competitors - loyalty schemes have become increasingly interchangeable from one provider to another, making them a less attractive proposition. Poor user experience is another point of friction, with customers finding clunky interfaces and redemption processes frustrating.

Looking at the second place program, Coop Supercard, we see that unredeemed points is another key issue - in 2017, the program had around 180 million CHF ($220m) in unredeemed points. As well as being a liability for the company, the unspent points shows that many customers may not be fully utilising the program’s benefits.

If loyalty programs aren’t the cost-effective solution to driving customer spending that they once were, what other areas should banks look to invest in? Digital banking engagement - which includes user-friendly banking apps, seamless online experiences and innovative mobile payment solutions - could be the answer.

Improving the user experience of digital banking apps can provide immediate value by giving customers more control over their spending. Features like instant transaction notifications, single-tap card freezing and personalised spending insights can help make customers feel more secure. And customers that feel like they’re in control should be more confident to use their cards more frequently.

Streamlining the digital onboarding experience is another area that could prove an effective use of resources. While traditional paper credit card applications can take days or even weeks to process, digital onboarding allows customers to apply, verify their identity and receive approval in minutes. This speed and convenience can improve application rates, helping banks acquire new customers more efficiently.

Data strongly supports investing in digital engagement:

• 75% of customers value user-friendly apps
• 60% value mobile payment capabilities

These digital engagement features are considered so valuable that customers rank them higher than traditional differentiators like brand reputation (53%), personal consultation (51%) and branch networks (43%).

The argument for investing in digital is even stronger among younger customers. For people aged between 16 and 29, the numbers jump to 87% valuing app user-friendliness, 79% valuing full-featured online banking and 78% valuing mobile payments. As this demographic gradually forms the core banking customer base, meeting their expectations will become increasingly important for DACH banks.

Are loyalty programs dead? Not necessarily. But as operating traditional loyalty programs becomes a less effective investment, and customer preferences continue to shift toward digital experiences, banks should consider reallocating some resource towards improving digital engagement as a way of delivering customer value.

Improving the digital experience in addition to traditional loyalty programs could prove the most effective strategy of all (the European loyalty programs market is still projected to grow from €19.64 billion in 2025 to €31.8 billion by 2029). For example, integrating contextual rewards directly into digital journeys - like instant cashback notifications or personalised offers - could help retain the positive aspects of loyalty programs while eliminating the friction that makes traditional programs less effective.

By complimenting traditional loyalty programs with seamless digital experiences, DACH banks have an opportunity to create a significant advantage in an increasingly competitive marketplace.

Want to learn how G+D Netcetera can help your bank improve its digital engagement? Get in touch with our experts.