back icon Back Insights 11/09/2023

Loyalty Programs for Banks: Building Lasting Relationships with Customers

Financial institutions have long recognized the value of fostering trust and lasting connections with their clientele, giving rise to a thriving bank loyalty program market. With the global retail bank loyalty market size projected to exceed $1.5 billion by 2028, bank loyalty programs have emerged as strategic tools to not only reward customers for their consistent patronage but also to incentivize behaviors that advance financial providers’ objectives in an ever-evolving landscape. 

Bank loyalty programs have become increasingly relevant revenue-driving tools to reduce customer acquisition costs, increase customer retention rates, and improve general customer satisfaction. Explore the loyalty program strategies that enable financial institutions to stand out in today’s competitive market with actionable tips for an effective customer-centric approach.

The Benefits of Bank Loyalty Programs

It’s no secret that the products and services in the retail banking sector cater to consumer needs, whether they’re home mortgages, personal loans, savings and checking accounts, or debit and credit cards. Retail bank loyalty programs are no different. They are a means to cater to evolving customer needs in terms of financial products and services and anticipated loyalty rewards. 

In a market saturated with financial providers, robust bank loyalty programs serve as a unique selling proposition, distinguishing one bank from another. While the average U.S. consumer belongs to more than 16 rewards programs, they actively use less than half. According to 61% of banking customers, it’s “crucial” for banks to introduce more innovative rewards.

Innovative bank loyalty programs foster a sense of belonging, making customers feel truly valued. This sense of belonging keeps existing customers engaged long-term and reduces the likelihood of them defaulting to competitors. Rewarding banking customers for consistent engagement can also increase the use of an institution’s banking services, enhancing stagnant revenue streams.

Likewise, with well-structured loyalty programs, banks can gather actionable insights about customer preferences, behaviors, and needs, paving the way for better service delivery and product development. For instance, with 97% of millennial customers using digital banking regularly, mobile loyalty program applications can generate dependable data-driven insights.

Key Features of Effective Bank Loyalty Programs

When it comes to covetable features in banking customer loyalty programs, customizable rewards take first place. The most successful programs allow customers to pick between various reward types, be it cash back, lower interest rates, or exclusive offers. Nearly half of loyalty programs provide cash-back rewards, while another 32% deploy exclusive membership perks. 

Beyond rewards redemption, diverse opportunities to earn rewards points are another critical feature of effective bank loyalty programs:

  • Transaction-based bank loyalty programs award points for everyday banking actions, like debit card usage or direct deposits, and are a popular reward-based credit card system.
  • Promotion-based bank loyalty programs collect points for limited-time offers, such as earning bonus points for opening a new certificate of deposit (CD) or savings account.
  • Milestone-based bank loyalty programs award points for continuous, long-term loyalty and are common when a customer reaches their business anniversary with a bank. 

In addition to earning and redeeming rewards, most effective bank loyalty programs are structured in tiered membership levels. They feature levels like Silver, Gold, Platinum, and even Platinum Honors, with higher tiers earning higher-value perks. For instance, banking customers in higher loyalty tiers often receive lower APR rates and higher spending limits on new credit lines.

While membership tiers help motivate customer engagement, ensuring a seamless user experience is vital. Effective bank loyalty programs deploy intuitive online portals or mobile applications for customers to track, redeem, and learn about points. Such platforms also allow advanced data analytics to gauge the program’s effectiveness and personalize user rewards. 

How to Build an Effective Bank Loyalty Program

Which bank has the best rewards program? Some argue that the title belongs to Citibank’s ThankYou Rewards, while others believe it’s Capital One’s Savor Rewards. With these five steps, you can craft an effective bank loyalty program.

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Define Your Target Audience

Before launching into points and promotions, defining the target audience for your bank loyalty program is essential. The best place to start is with your current customer demographics. When you view individual customer profiles, what’s their average age, household income, and desired financial services? Here’s a look at how customer demographics could sway your loyalty perks.

  • Millennials: Recognized for their tech-savviness and preference for digital banking, craft programs that offer mobile-based rewards, digital vouchers, or tech gadget discounts.
  • Retirees: Older demographics often prefer traditional banking methods, so consider higher interest rates for fixed deposits or discounts on health-related products and services.
  • High-net-worth individuals: Prioritize premium and exclusive offers, rewards access to exclusive banking services, priority banking, or luxury lifestyle benefits.
  • General banking consumers: Cater to a broader financial audience with a diverse mix of cashback, discounts, and convenience-based rewards, such as banking fee waivers. 

Align with Your Brand Values

At a time when nearly 40% of banking customers value simplicity and another 15% value personal relationships and brands as essential drivers in choosing a banking provider, it’s vital to align your loyalty program with your brand values as clearly as possible. For instance, if your bank prides itself on trust, ensure your program is transparent, with clear criteria and no hidden clauses.

With simplicity at the top of your mind, innovation should be a core value in your bank loyalty program. Pioneer’s unique reward structures gamify the earning process or integrate with trending tech like virtual reality (VR) for an immersive experience. Banks focused on community building offer rewards that give back, such as charitable donations or community event tickets.

Create Diverse and Relevant Rewards

As per a May 2022 consumer survey, 43% of Americans consider flexible rewards an important feature not only in loyalty programs but also when receiving personalized experiences from brands. For banks, it’s critical to deploy a variety of consumer-preferred financial benefits, such as interest rate reductions, cash-back rewards, and zero transaction fees for a specified period.

It’s also wise to invest in exclusive experiences, such as financial literacy workshops and private banking events. To curate rewards for your customer base, use data analytics to tailor offers, sending relevant rewards or promotions based on individual customer profiles, spending habits, and preferences. For instance, frequent travelers may prefer to earn travel rewards and discounts. 

Promote Program Engagement

Once you create guidelines for how customers will earn and redeem rewards and define the rewards structure, promote engagement among your customer base. Start in physical bank locations, train staff to educate walk-in customers, use in-branch digital screens to showcase benefits, and set up kiosks where customers can learn more and sign up.

Likewise, remember to market your new loyalty program. Television, radio, billboard, and print advertisements help spread the word to older demographics, while younger audiences may be more receptive to email and social media ads. Implement personalized emails or SMS campaigns highlighting customers’ potential benefits based on their transaction history.

Leverage Digital Platforms

When it comes time to launch your bank loyalty program, do not negate the power of digital platforms in supporting and scaling your operations. One place to start is with mobile loyalty applications, which can be integrated directly with your current mobile banking apps to allow users to check, redeem, and earn points on the go while managing their account balances. 

Harness digital platforms in your loyalty program marketing as well. Utilize social media to create awareness campaigns, highlight success stories or testimonials, and run special point-earning challenges or quizzes to engage your audience. You can also deliver routine email newsletters detailing how to earn more points, spotlighting top earners, or introducing new program perks. 

Measuring the Success of Bank Loyalty Programs

The only way to advance a new bank loyalty program is with continuous improvements informed by program metrics. So, be sure to track key performance indicators (KPIs) like the program’s Net Promoter Score (NPS) and customer churn rate. Customer retention will be a massive KPI; in fact, 81% of financial companies use it to measure the success of a customer loyalty strategy.

Track the growth in average account balances over time, as an increase here can indicate heightened trust and deeper engagement with your bank’s financial products and services. Also, monitor the rise in cross-selling opportunities or the uptick of complementary products or services purchased by bank loyalty program members to gauge general program success.

Enhance Customer Loyalty with arrivia

A well-structured bank loyalty program is the way forward for financial institutions aiming to foster lasting connections and forge ongoing brand loyalty. Fortunately, the banking industry has never been more poised to strike gold in customer loyalty programs than it is now when loyalty program adoption is at its peak—and the experts at arrivia are here to help. 

For over 25 years, arrivia has powered travel loyalty and rewards programs for some of the world’s most renowned cruise, hotel, resort, and financial brands, including Bank of America, American Express, and Morgan Stanley. Discover how financial institutions can achieve growth and foster loyalty with a travel rewards program in the latest whitepaper from arrivia