Due to the fragmentation driven by the rapid proliferation of neobanks and upstart investment alternatives, established financial institutions, and newcomers alike, are under increasing pressure to introduce value-adding features to acquire new customers and retain existing customers. Some of the biggest moves to add value involve the introduction of loyalty programs offering cashback rewards and digital coupons.
Investment and Acquisitions in E-commerce Rewards Technologies Have Accelerated
In recent years, investment and acquisitions in rewards technologies have accelerated. Witness: PayPal bought Honey in 2019 for $4 billion, and Capital One acquired Wikibuy in 2018 to power its Capital One Shopping program – now in use by over 5 million customers.
In general, rewards programs offered by FI’s are nothing new, since interchange-funded cashback offerings, points programs and dining rewards are commonplace. However, the new wave of rewards programs are differentiated by their ability to meet the consumer where they are, tap incremental revenue streams, add value to merchants, and shift tender choices.
Understanding “Offer Walls”
In the past, consumers were offered rewards via ‘offer walls’ and in-app shopping directories through which they are able to activate shopping rewards. But these programs, common among card-linked offers and other legacy rewards initiatives, require customers to detour from their natural online shopping behavior to activate the benefits. As a result of this required detour, adoption of these legacy offerings has been incredibly low, and the perceived (and actual) value to consumers has often failed to merit the cost and effort to deploy such programs.
But, the latest rewards offerings are built upon new technologies which enable rewards programs to integrate more seamlessly within customers’ natural shopping behavior, thus driving more than ten-fold adoption and consumer value compared to legacy offerings. In particular, programs that provide browser extensions for desktop and mobile devices enable rewards offerings to integrate within users’ organic online shopping experience and deliver benefits to users by enabling them to activate cashback and digital coupons within the flow of their shopping trip. And with the dramatic recent shift to online shopping, these programs drive disproportionate value to consumers as their spending shifts to e-commerce.
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Additionally, the proliferation of payment options, including buy-now-pay-later and digital wallets, has created a battle for customer mind-share within the online shopping experience. Newer shopping rewards platforms have the added benefit of influencing tender choice and pulling the FI to the top-of-wallet for e-commerce, by promoting the FI’s payment offering and the associated shopping rewards benefits from the very beginning of a shopping trip, all the way through to checkout.
Why You Need to Focus on Developing Shopping E-commerce Rewards Programs
Shopping rewards programs complement existing rewards programs since the rewards are able to stack on top of pre-existing rewards offerings such as card cashback and points programs. Most importantly, shopping rewards tap merchants’ performance-marketing and acquisition budgets, which are above and beyond their interchange fees, so these programs introduce new revenue to FI’s, often generating an incremental 300-600 bp’s on top of interchange for all relevant e-commerce transactions.
The benefits from these programs are not limited to consumers; merchants also benefit from incremental sales driven by increased transaction conversion rates and reduced shopping cart abandonment. Based upon our data, consumers who activate cashback e-commerce rewards at the beginning of a shopping trip convert at 5-10 times the standard e-commerce transaction conversion rates.
FI’s are drawn to shopping rewards programs because they are among the rare win-win-win offerings in their toolkit. The consumer wins with rewards, the merchant wins with increased sales conversion, and the FI wins with customer retention, top-of-wallet consideration, and incremental revenue.
While extending e-commerce shopping rewards is a pronounced and accelerating trend among FI’s, it is still in its early days. Forward-thinking FI’s have the opportunity to deploy these programs and achieve differentiated customer value in the near term, plus shore up their defenses against their increasingly fragmented competition. Given the rising level of consumer expectations for such programs, shopping rewards will ultimately become table-stakes for FI’s, but the early movers still have the opportunity to gain the high ground.
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