In the six years that Citibank has offered its Thank You Rewards program, nearly 11 million checking and credit-card customers have signed up to earn points through just about every interaction they have with the bank. Making a debit or credit purchase or opening a money market account rings up points that Thank You members can use to get a new flat-screen television or a trip to Tahiti.
Thank You members have compiled 62 percent more points than Citi customers who only get rewards for one product, says Terry O'Neil, executive vice president of North American Cards at Citi. "That is absolutely an indicator of engagement," he says. "We're very focused on rewarding our customers for the types of relationships, and the depth of relationships, they have with us."
When Citi launched Thank You Rewards, many thought universal relationships were the future of rewards programs: customers earning (and pooling) more points across multiple products and services; banks gaining loyalty through more uptake of bill pay, brokerage accounts and, yes, cards to keep the points rolling in.
But nearly four years after financial services research firm Aite Group predicted relationship rewards would go mainstream, such evidence is hard to find. Relationship rewards programs have launched at major institutions periodically, like Regions Financial Corp., but analysts say most banks have not followed early adopters like Citi or Banco Popular. "With few exceptions — Citi is the one that comes to mind most quickly — there hasn't been much push by institutions," says Synergistics Research Chief Executive Bill McCracken.
Much of the momentum in loyalty instead switched to signature debit cards. Banks stoked customer engagement by offering retail goods or travel perks equal to the traditional rewards available on credit cards, and enjoyed booming interchange income and merchant funding to help pay for redemptions. The trend lessened the need to expand into relationship-based rewards where the added benefit — measured in terms of cross-sell ratios or customer retention figures — was less tangible.
While the debit-only rewards model is in serious jeopardy from the Fed's proposed interchange caps (JPMorgan Chase begins phasing out its debit rewards program this month), there remain too many questions about the viability of relationship rewards to forecast a sudden surge of interest, say some observers. "I thought this was a good idea," says Aite's Ron Shevlin. But upfront costs of platform investments (even through an outsourcer) caused many banks to pass, along with concern about the potential return on their investment, he says. "I think what firms found as they began to evaluate it, they started figuring out what it's going to cost to run, the hit we might take — and for what?'"
Questions arose over whether such rewards really could improve wallet share (is a gift card enough to attract a mortgage refi?), and smaller banks weighing relationship rewards wondered how they'd manage different customer segments on the same loyalty platform. Would program management and redemptions be handled by the retail side, or by the loan, investment or online banking departments where a rewards checking customer signed on for more services?
Other thorny issues included: Who "owns" the customer relationship if that accountholder also has a credit card, a mortgage, and an auto loan at the bank? And what does it benefit the card unit if a checking customer cashes in points for earn a lower interest rate? "Each of these product lines have profitability goals and targets," says Shevlin. "There's little incentive for one group to give away any of its margin in terms of better rates or fees to another group's clients."
Not everyone agrees that relationship rewards have largely flunked out in the industry. Though he would not offer names, Chris Suppa, senior business leader of rewards and product lifecycle management at MasterCard, says his company has been busy building an enterprise loyalty rewards platform at three major banks since 2008, with more in the pipeline. "I certainly would expect [analysts] to take the point of view these programs are not performing from a financial standpoint," Suppa says. "But I will say we've met with a fair amount of demand."
The first banks offering relationship-based rewards say they continue to see the payoff in customer affinity and activity. Banco Popular, which launched one of the first relationship rewards programs in 2002 with its PREMIA account, has seen a lift in balances, profitability and product use by customers enrolled in it, according to Popular senior vice president Fabio Garcia.
Citi's Thank You program provides consumer preference data (beyond that captured in card payments), leading to better pricing and plans for merchandising. So even if most of the industry says no to relationship rewards, O'Neil says Citi plans to carry on. "We're very interested in continuing with the enterprise nature of Thank You."
