Facing high interest rates, consumers are looking for ways to improve returns on their savings, utilising open banking and switch guarantees to shop around for the best deals.
Financial institutions like banks and insurers face a unique challenge in that they typically offer products and services that are interchangeable, easily substituted by those of competitors. Meanwhile, macro-economic pressures mean they face a heightened sense of urgency to launch innovative products and services to capture new revenue streams and bind their customers. Coupled with the increasing importance of online interactions and demand for relevant, value-adding benefits, FS companies must consider the evolving role of their loyalty programmes.
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A recent global survey found that 79% of corporates with an existing loyalty scheme intend to revamp the programme, while 57% have already made significant changes in the past two years. Importantly, the solution isn’t to reinvent, but rather evolve, the concept of loyalty.
Consumer attitudes, behaviours and expectations are adapting, so loyalty programmes must adapt too.
Web3-based opportunities
Most FS loyalty programmes focus solely on earning and spending points; yet it is no secret that customers consider many of these schemes to be low value. A lack of customer-centricity, innovation and relevance are common user engagement pitfalls. Positively, the advent of new technologies like web3 open the doors to a whole host of exciting new opportunities.
Web3 is an evolution of the web, utilising public blockchains to create a user-owned internet where participants have direct control over their data, assets, and influence over the platforms they engage with. This model emphasises individual ownership and governance, contrasting with the centralized authority of previous web generations – and has gained a lot of traction since the concept was born a few years ago.
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By GlobalDataIt also creates huge potential to break out of the transaction-reward mindset and leverage the power of new technologies. Web3 has shown its potential to build community and drive engagement, and FS firms should explore how web3 ownership can enhance or extend existing offerings such as loyalty programmes.
Allowing companies to extend engagement beyond traditional touchpoints, web3 blurs the boundaries between the digital and physical worlds, allowing perks in the form of tradeable rewards across an ecosystem. Instead of developing complex and costly integrations with third party website or physical partner locations, access to these third parties can be easily verified publicly. Brand collaborations are thereby simplified, creating the opportunity for cross-brand perks and benefits that are meaningful to the consumer.
These next-gen loyalty programmes are becoming key to attracting and building a loyal customer base that is underwhelmed by traditional models and are particularly alluring to Gen Z customers: by offering digital collectibles and immersive experiences, banks and FS firms can drive engagement and foster brand loyalty amongst this key demographic.
Tokenomics
Some FS players have already introduced their own digital tokens – blockchain technology is being used to create unique incentive schemes with multi-fold applications, from engaging clients and customers, to developing personalised rewards for their own employees.
Tokenised programmes offer unique benefits for participants and the company. For one, they introduce the concept of exclusivity through benefits that align with their interests and motivations. On the other hand, they offer an incentive to stay with the company and reap the rewards of their loyalty.
An interesting market case study is NuBank, a leading digital bank based in Brazil. In the first quarter of 2023, NuBank launched a new loyalty scheme built around the crypto token Nucoin.
This innovative approach allowed the bank to rethink the fundamentals of its loyalty programme, placing the client at the centre. It aspires to create more aligned incentives, build a community, and gamify the banking experience.
Users can earn tokens through their daily purchases and engagement within the broader community built around the bank. These tokens serve a dual purpose: used to offset daily purchases, or strategically locked for access to more exclusive benefits and higher-level discount tiers. This dynamic ecosystem, together with the option to sell points to other participants, can create more engagement among devoted participants. According to the latest results, the banks’ engagement metrics consistently climb to new highs every quarter.
A digital renaissance
As the concept of ownership evolves in the face of digitalisation and web3, its application within the context of loyalty programmes must be carefully considered. The banking world is undergoing a shift of its own, too. An enhanced sense of ownership encourages a customer-centric model that gives individuals more say over their incentives and the autonomy to utilise rewards according to their own preferences – either by redeeming, holding onto, or transferring their perks.
Digital collectibles can add to existing loyalty programmes, creating deeper relationships as customers receive digital assets closely tied to the financial institution. They also celebrate the customers’ unique interests and behaviours. Customers with a passion for art for instance can be gifted bespoke digital art pieces, while others might prefer to use the token to unlock access to unique experiences.
In terms of generating buy-in from customers, this can be achieved through various means.
FS companies might sell their rewards to a wider audience, offer unique and non-exchangeable assets to a small user based as a token of appreciation, or create benefits for holding onto digital assets like NFTs. For instance, to gain early access to new products, or to special events.
Several notable players have already made a foray into the alluring world of NFTs. Visa and Sygnum Bank stand out for their purchase of a CryptoPunk and the credit card provider has also launched its own NFT creator programme. ZA Bank has introduced an NFT maker, enabling users to create their own based on digital artwork. Meanwhile, livi bank launched a limited edition of “Mochi” NFT artwork collectibles to mark its second anniversary and thank customers for supporting its journey.
It is evident that the conversation around digital assets within loyalty programmes has shifted from speculation to utility. Now, major players are actively experimenting with ways to drive user engagement and setting the stage for mass adoption and richer experiences.
The future of loyalty programmes
While the long-term results of such schemes are yet to be seen, tokenised rewards represent a new frontier in customer engagement. They pave the way for more dynamic and interconnected ecosystems that break the siloes of traditional models.
Web3 can serve as a key enabler for the future of loyalty, creating better experiences and meaningful opportunities through gamification and engagement. FS companies have been slow to leverage the opportunities on offer, but with a few early adopters leading the pack and demonstrating the tangible benefits for both company and consumer, web3 is on course to reinvent the entire concept of customer loyalty.
Janis Heibel is Head of Crypto and Digital Assets, Synpulse
Synpulse is a global professional services company and a valued partner of leading players in the financial services and related industries.
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