More Banks Adding Rewards To Expand Customer Relations

  If one reward program is good, can two be twice as good? The success of credit and debit card loyalty programs has led banks to implement systems that reward consumers for all their banking activity. Large banks especially are finding the returns on these "relationship rewards" programs promising despite the expenses incurred for marketing, systems and fulfillment.
  Research findings from the American Bankers Association suggest the average consumer has just two relationships with a bank when three or four are necessary for the institution to generate a profit. Moreover, the ABA says, it is four times more expensive to acquire a new banking customer than to increase product relationships with an existing one.
  Therefore, some marketers believe, it is better to use rewards to entice customers to open more accounts with the bank.
  Citibank is among the financial institutions that share that belief. The bank, which has about 150 million cardholders, launched its ThankYou Network in July 2004 across its card offerings, creating a points currency that it sought to elevate to the status of frequent-flier miles. The ThankYou program immediately had 8.8 million accounts enrolled as cardholders of the Diamond Preferred Rewards, PremierPass, Platinum Select and AT&T Universal credit products automatically were made members.
  Citi raised the ante this April when customers received points for checking, savings, personal and home-equity loans, lines of credit, certificates of deposit, mortgages, online bill payments, direct deposits, and debit and credit card purchases. The rollout to a total bank relationship allowed enrollees to receive points every month according to the type of checking account and number of Citibank products they use.
  "We want to acknowledge customers in a meaningful way and encourage them to broaden and deepen their relationships with Citigroup," says Bill Borden, executive vice president of Citi Cards.
  Citi kept ThankYou's original award-redemption levels in place despite April's expansion, allowing the previously enrolled card customers that have a second relationship with the bank to earn points even faster. That means Citi's costs will increase as more customers redeem rewards.
  "Because we are responding to their increasingly diverse needs and providing tangible value to them, we believe customers' propensity will be to expand their use of our products and to obtain more of them," Borden says. "We believe there's a mutual return for us and for our customers."
  Citi is offering ThankYou to its Puerto Rican customers, butting up against San Juan-based Banco Popular's Premia, a 3-year-old relationship-banking program. Premia has successfully encouraged existing and new Banco Popular customers to consolidate their financial relationships with the bank, says Miguel Paez, Premia vice president and manager. "It's been a good marketing tool in terms of getting the right accounts to our customers," he says.
  Initially Banco Popular invited 80,000 customers into Premia. But it has experienced greater consolidation activity since it opened membership, at a $15 annual fee, to its entire customer base. The five-year growth target of 200,000 members was achieved by the end of the second year, and annual membership growth has averaged 21% in each of the past two years, says Paez.
  Banco Popular finds that Premia drives customers to both consolidate their relationships with the bank and to increase their self-service banking. "We reward the use of Internet banking," says Paez. "Channel migration and usage are part of our key measurements when analyzing Premia members' behavior and results."
  Thirty percent of Premia members regularly redeem their points. "It's very time consuming, and it's very costly for any bank," Paez says. "I guess that's why banks have been shy about getting into this."
  But Banco Popular is not looking to ditch the program, even in the face of the threat from Citi's ThankYou.
  "We see relationship banking increasing with big national banks, but we're more competitive," Paez says. Banco Popular rewards Internet and phone transactions and does not cap monthly point-earning potential as Citi does.
  Still, bank marketers should be realistic when considering the payoff from rewards programs, according to experts.
  "Loyalty does not result from offering rewards alone," says Frequency Marketing Inc.'s Bill Hanifin, loyalty program consultant to Banco Popular. "When consumers begin shopping for a mortgage, car loan or investment option, they rarely give preference to the bank where their primary checking account resides. This is the challenge for the banks today and one that will be solved through smartly assembled customer-retention and loyalty programs that span multiple product lines."
  At Banco Popular, success has come from extending the relationship beyond specific banking products and tangible awards to an emotional connection to the brand. Premia was launched to counter competition from local banks offering high levels of in-branch service and from multinational card issuers attempting to sweep up top-tier customers, says Hanifin.
  Eighty percent of Premia's awards, including travel, event tickets, special offers, restaurant meals, hotel stays, merchandise and gift cards, are locally based. The rest are with national brands such as Starbucks and Sears. The emphasis on local awards and experiences constitutes a formidable defense for Premia against ThankYou, at least for now, Hanifin says.
  Charlotte, N.C.-based Wachovia Corp. followed Citi's ThankYou with a relationship rewards program called Honors. In May, Wachovia announced it would expand Honors from 150 New York, Connecticut and New Jersey test branches to all of its retail banks in 15 states and Washington, D.C., by early fall. "There's a very big market for this," says Brenda Wensil, head of Wachovia's new retail segments.
  Honors targets upper-mass market and lower-affluent consumers with points good for airline tickets, hotel rooms and merchandise. Participants are assigned a personal contact within their home branch, showered with always-available customer service and given free checking, online banking, online bill pay and safe deposit boxes.
  To participate, consumers must have $75,000 in total balances, $100,000 to $250,000 in ready assets and a high-end checking or Command Asset brokerage account with Wachovia Securities. Points are earned through deposit accounts, home-equity and consumer loans, along with investment accounts with the securities group.
  "Higher-value customers are more likely to be influenced by a rewards program-virtually any type of rewards program," says Chris Moloney, vice president of loyalty and retention marketing at Parago Inc. in Lewisville, Texas. "In all categories but retail, higher-income households are more interested and more involved in rewards programs."
  Wachovia also has a meaty base from which to build greater indulgence in its consumer banking lines of business. Of the 5 million households on the East Coast that fit the Honors criteria, the bank already counts 2 million as a consumer of at least one of its products, the bank reports.
  Wachovia can use Honors to woo new customers, too, says Wensil. "Consumers really are motivated by the accumulation of points, and they're willing to do something extra-they're willing to consolidate accounts-for a little more validation," she says.
  Moloney agrees, citing EverBank Financial Corp., a branchless online bank in Jacksonville, Fla. EverBank is in the process of launching a relationship-banking program across its retail products. The bank is doing so because survey data suggest consumers will consolidate and expand their relationships for as simple a reason as fee reductions.
  "Consumers want to be loyal," he says. "It's easier."
  Over the next 12 months, Moloney predicts, five to 10 major relationship-banking programs will surface. "Citi's expansion of ThankYou has sent shockwaves through the industry because it's such a large bank," he says. "The big banks really look at one another as big competitors. Wachovia very quickly wanted everyone to know they were doing something, and Chase and Bank of America are always looking at what Citi is doing. The investment banks are going to have to look at it, too."
  The rewards relationship programs may or may not increase card spending, but they demonstrate the power that cards have to initiate or expand the associations a bank has with a consumer. That puts plastic on a par with other major banking tools.
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