Instead of worrying about the negative impact legislation may have on card programs, community-based financial institutions should analyze what cardholders want from a rewards program by examining their card use and create programs that cater to those results, a new white paper suggests.
The Credit Card Accountability, Responsibility and Disclosure Act “and proposed debit-interchange regulations may be making the job [of card portfolio management] more difficult, but methods for program optimization still exist,” Ivy Sprague, product development architect at The Members Group and author of the opinion piece on card rewards, tells PaymentsSource.
Among these methods, rewards programs can have one of the most dramatic effects on portfolio performance, Sprague writes in her white paper “Still in Control–Look Past Regulations to See the Optimizing Power of Rewards.”
The paper cites research from the Federal Reserve Bank of Chicago that suggests little often is needed to get cardholders to respond to a rewards program. In particular, the study found that a 1% cash-back bonus created average monthly spend of $220 among previously inactive cardholders.
And the rewards incentive gave cash-back cards top-of-wallet status for more cardholders, which could help smaller institutions that compete with larger-scale programs, Sprague says.
“Encouraging cardholders to pull out your institution’s card also encourages them to think of [your institution] first when they have additional financial needs,” Sprague wrote.
The key to creating a rewards program that will encourage use of a financial institution’s card over another is to understand how consumers want to be rewarded, according to Sprague. She suggests providing altruistic rewards for causes important to the cardholders’ communities. She also cited following economic trends, such as a Virginia credit union that offered cash-back on gas purchases to help cardholders manage high gas prices.
Analyzing transaction data, even at small institutions, can help financial institutions understand customers, says Sprague. She suggests doubling rewards at home-improvement stores for cardholders in communities where do-it-yourself repairs are popular.
Sprague also praises the development of merchant-funded rewards programs, which can help financial institutions fine-tune rewards by signing up merchants where their cardholders already shop.
Mobile rewards also can generate interest in card programs, Sprague tells PaymentsSource.
“New smartphone applications that search for loyalty rewards are popping up, generating an interest–and maybe soon, an expectation–among cardholders looking to make purchases and redeem rewards in the most convenient way possible,” she wrote in her paper, noting consumers also are drawn to the ease of use of instant mobile rewards.
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