Disruption: the relentless drive to remove friction in customer loyalty programs

5 minute read from Ellipsis


Astute watchers of changes in the loyalty marketing world (we include you gentle reader) will have noticed some important developments that are still to reach their ‘tipping point’. But they will.
The general trend to replace physical loyalty cards is part of it, as we see e-wallets that store our cards. Examples include Stocard, which replaces the need to carry bulging card-stuffed purses and wallets, with our smart phone. It is a short step for these mobile card repositories to become wallets that also pay, introducing a onestep pay & earn points tap of the phone – as Apple Pay have already implemented with Woolworths (still two taps, but one device). 
Less fuss, less taps, less to remember when collecting loyalty points while shopping, less friction. But just as importantly, the ability for each consumer to easily ‘self-curate’ their loyalty program universe in one digital convenience.
Add to this the root cause of much disruption to come, card linking - and we have the elements of a real disruption to the old ‘points and prizes’ loyalty model.
Card linking has been enabled by the payment schemes, MasterCard, Visa and Amex, who have opened their ‘rails’ to marketers. With proper permission, it is now possible for marketers to now be informed (in real time if they prefer) when a registered payment card is used in a particular retailer. Credit or debit cards are supported, if they are scheme cards.
This capability has initially created a market for Online to Offline (O2O) campaigns, with customers ‘adding’ retailer discount offers to their cards from their banking app or online statements and receiving these discounts off their statements when they use their card to shop with the retailer making the offer. Great for the retailer who can clearly attribute sales to campaign costs and pay specifically for results.
But the disruption to the loyalty market has yet to fully emerge. We see two business models developing that will take advantage of these technology advances.


1.Making life easier for retail loyalty program operators

Program operators have developed loyalty platforms that keep track of points as they are earned, issue vouchers as rewards, present targeted offers to members based on their purchases, manage the program’s web site and mobile app, and report on most valuable members to the retailer. Generally, run the operations of the program for the retailer, for a fee.
Nothing new here, you say.
However, these new loyalty vendors can avoid a large part of the implementation work by utilising ‘card linking’ technology offered by the payment schemes: by enabling consumers to link their payment cards (typically online) to their loyalty account, vendors allow consumers to take part in the retailer’s program, earn, accumulate, and redeem points and promotional offers without presenting a separate loyalty card at the point of sale. Using their linked card in the retailer is enough to earn and redeem, with no fuss.
Importantly for the retailer, there is no need to integrate with the point of sale system, no IT implications or work needed. The loyalty operator receives notification from Amex/MasterCard/Visa that the registered card was used in the retailer, and the transaction amount. This triggers updates to credit loyalty and payment accounts. No physical cards are issued, offering a further cost saving for the retailer.
These loyalty operators, in effect, make the choice of payment card irrelevant to participation in the retailer’s program, which is completely understandable from the shopkeeper’s perspective. The payment schemes see the transactions and are willing to communicate these data to the operators, who simply need to have arrangements with the most popular payment card brands to offer a practical loyalty solution. There are good examples in America and Australia.
There is a limitation here though. The schemes see how much you spend but they do not know exactly what you bought. No ‘Offer them a milk discount if they purchased bread but no milk’ opportunities, unless the retailer integrates with the point of sale system.


2.Making life easier for loyalty program members

The credit card issuers should be concerned about the ‘pick a card, any card’ consequence of card linked loyalty for retailers. In many markets the credit card companies can no longer afford to compete program-to-program with retailers; we have written about the impact of interchange cuts on credit card loyalty programs before.

With limited budgets for card loyalty, banks are already turning to retailers to add value to their cardholder interactions, that is the main drive behind the card linked O2O marketing; in other words, banks using retailers’ marketing budgets while taking credit for the ‘deals’ to keep customers engaged. The problem is that this marketing generally requires additional budget for retailers, and they already have their own plans for marketing in place. It makes sourcing a rich supply of impressive and persuasive offers a challenging task for banks. Retailers would rather spend their money with their loyalty program members directly. We already know they do not really care which card you pay with.

This card linked coin has two sides however. One side is the ability to make the choice of payment card irrelevant, the retailer the focus. The other side is to make the choice of retail loyalty program irrelevant, the payment card brands the focus.

We believe there is the opportunity for banks to become the loyalty aggregator for their customers. Invite them to register all their loyalty program accounts and link them to the cards they have from you. Enrol retailers in your program so data exchange can then ensure members receive points when they do business with the retailer without carrying a separate loyalty card. Banks see all transactions so can manage this process without involving the payments schemes if they would like to do it themselves, or they can collaborate with loyalty vendors with relationships in place.

For customers, the bank app becomes central to their loyalty life, the place to look up point balances, scan for the best loyalty offers across their ‘self-curated’ loyalty eco-system. A place to sign up for new programs, take up O2O offers and all without the need to share my credit card number with anyone else (my bank already knows it).

For retailers, scan rates increase, existing budget (not additional money) is better invested, program enrolments increase as the effort involved to sign-up in new programs is trivial.

For banks, they can offer services to customers that are not transactional or transparently self-interested, while giving customers compelling reasons to make their cards the everyday spending cards; use our cards and you will not miss your points.

Banks could also conclude that their proprietary programs are not rich enough to influence customer behaviour directly anymore, but they may be an attractive ‘top-up’ opportunity for members who are actively collecting points in richer retailer programs. Allowing customers to convert value from banks’ proprietary programs to retailers’ programs (with the bank effectively buying points in retailer programs of their choice as the bank’s contribution to loyalty) is a low risk offer once the bank is established at the centre of the customer’s loyalty universe.

The two sides to the card-linked ‘coin’ are not mutually exclusive, but there will be a first mover advantage no matter which way the coin falls.

Either way, the effort required to maximise return from loyalty programs will decrease for consumers.


Ellipsis specialise in Customer Experience Management and Loyalty Consulting. We help our clients become customer centric, because we believe getting this right is crucial to creating value.


Please get in touch, we’d love to talk.


Download the White Paper

Fill in your details to download this white paper.

Keep me updated with the latest news
Sign Up to receive our latest news and white papers