As cuts in debit card interchange and changes in credit card regulations have threatened to reduce issuer-provided card rewards, some merchants have responded by working with issuers to bolster their rewards programs. In doing so, those retailers receive a direct line to card-spending consumers and give financial institutions a way to cover their card-rewards costs.
But retailers are becoming savvier about what they want from issuers as part of those agreements, says Molly Plozay, vice president of loyalty service at First Data Corp., which provides and manages merchant-funded rewards programs.
“Financial institutions continue to turn to merchant-funded rewards and with that the merchants are becoming aware of those programs but also are more savvy and are wanting to negotiate better deals,” says Plozay.
First Data was unable to provide specific examples of deals because of confidentiality agreements.
Merchant-funded rewards programs provide an opportunity for financial institutions and retailers to bolster card use, especially during down economic times, Plozay says. “Consumers are looking for deals everywhere as they evaluate their card relationships, and they want those opportunities to save on daily spend as well as on purchases they may only use a credit card for once a year,” she says.
When merchant-funded rewards first started about four years ago, deals were more one-size-fits-all, says Plozay.
“One thing retailers are asking for is more targeting,” says Plozay. That challenges merchant-funded loyalty providers to provide more detailed analytics back to the retailer in terms of showing the lift they were seeing before and after they implemented the rewards, she says.
Merchants also are negotiating away processing fees in favor of providing richer rewards to consumers, Plozay says.
Any retailer who has been out buying marketing and media understands how difficult it is to target consumers, says Plozay. “Merchant-funded rewards with analytics very quickly shows value to the retailer by showing a segment of consumers that aligns with the retailer’s strategies and goals,” she says. With merchant-funded rewards, the retailer’s brand is being presented to that consumer segment they the retailer is looking for, she notes.
Retailers also are favoring registered card programs, in which consumers sign up different credit cards with a particular loyalty program to get rewards. The United Airlines Mileage Plus program, which enables consumers to sign up cards to receive points from spending at participating retailers, such as restaurants, is an example of a registered card program.
Plozay expects merchant-funded rewards will continue to evolve. “Retailers are becoming more knowledgeable about which types of consumer targeting is valuable to them,” she says. “We’re going to continue to see retailers getting their money’s worth out of these rewards programs, and they’re going to demand greater analytics of where their dollars are going.”
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