Other banking companies seem content to wait and watch as Citigroup Inc. brings the reward program, a longtime staple of the credit card business, into retail bank branches.
U.S. Bancorp, JPMorgan Chase & Co., and Wells Fargo & Co. have extended their reward programs to their debit cards, but no further. Spokespeople for those three companies would say only they were aware of the retail banking version of the Thank You Network, which Citi started offering last week. The program appears to be the first in the mainland United States to reward customers with points for getting products and services like direct deposit or checking accounts from a bank.
Citi says it expects other companies to follow suit. "I think we will see some followers into the market," said Wayne Malone, its managing director of transaction innovation.
But the experience of Banco Popular, which has been offering banking rewards in Puerto Rico for three years, shows that such programs can be difficult to manage.
"It is not as easy as going tomorrow and starting from scratch," Miguel Paez, the vice president in charge of the Popular Inc. unit's Premia program, said in an interview.
Like Citi's program, Premia is designed to retain customers by offering points for banking activities such as making deposits and opening secondary accounts.
In a conference presentation last year, Fabio Garcia-Passalacqua, at the time a Banco Popular vice president and the manager of its card products division, said that soon after Premia was launched - with a $20 million start-up budget - members began redeeming points at three times the expected level.
To bring the program in line with expectations, Popular reduced the points given for some activities, he said. Customers were not upset, because they still received points "for so many things."
Mr. Paez said that despite the hiccups, Premia now has 210,000 members. "The results we are seeing suggest customers are happy with the program and increase their products and relationships" because of it.
More banks need to offer such programs, he said. "At the end of the day rewards programs are offered in all industries. Every time you go for a sandwich you get something. You see loyalty programs for everyday things," but banks should expect to wait two to three years before such programs yield results.
Mr. Malone would not discuss the costs of Citi's reward program. (The rewards range from gift certificates and airline tickets to unusual items such as APR reductions and hot air balloon rides). He said that Citi spent 18 months working on the program, and that a key part of that work was "figuring out the right formula."
William Hanifin, a consultant with Frequency Marketing Inc.'s Colloquy Consulting Group, helped develop Popular's program. He said Citi probably did a detailed pricing analysis and would award points in proportion to the value of the product or activity.
"Personal loans, mortgages, and investment accounts are very profitable," Mr. Hanifin said. "We have to make the assumption Citi has done their homework and built their business case."
Citi must be flexible and let the program adapt to customer reaction, he said.
Mr. Malone said the program was developed in response to complaints from longtime customers that they got nothing while Citi rewarded new customers for coming aboard. "We had never shown true appreciation [to longtime customers] as far as giving them anything."
Citi leveraged its experience with loyalty rewards on the card side, he said. "Being a big card issuer for many years, we understand rewards and customer behaviors. We have a good sense of what this will do for us and the industry."
In the program's first year, Citi expects to sign up 500,000 to 1 million customers. (Around 8.8 million have signed up for the credit card version of the Thank You Network, which debuted in July.)
Why require customers to sign up before they get points? "We want them to know they are in it," Mr. Malone said. "People don't read statement inserts or even open their statements."
Customers get no points for opening just one account or product; they earn 25 points for getting at least two more - and more for a high-end account like CitiGold, which requires higher balances.
Around 95% of Citi's customers have at least three products, Mr. Malone said. "We haven't made the hurdle very high."
Customers also earn points for requesting direct deposit, paying bills online, taking out a home equity line of credit, or, of course, using a debit or credit card. A customer who carries a CitiGold account and gets at least six other products or services from Citi will receive 1,200 points a month, and 25,000 points is enough for a coach class airline ticket.
Mr. Malone said the program will eventually include other banking activities, such as its brokerage unit Smith Barney, as well as other countries.
Martha Rogers, a founding partner of Peppers & Rogers Group, a Norwalk, Conn., management consulting firm owned by Carlson Marketing Group, said Citi will have an edge until other companies copy its program.
"If a customer uses more than three products, they are much less likely to churn," she said. "The challenge comes when somebody else does the same thing."
Such programs might train customers to expect rewards, but would not necessarily make them loyal to any particular bank, Ms. Rogers said.
She noted that when American Airlines Inc. introduced the first frequent flyer program in 1981, other airlines responded by introducing programs of their own within weeks.
"When the first airline offered frequent flyer miles, it was cool," Ms. Rogers said. "Now you feel like an idiot if you fly and don't get miles."
