How financial brands can drive growth and loyalty through travel rewards
By Travis Markel, Chief Experience Officer
Like many consumers, my purchasing habits changed during COVID-19. I went from buying the occasional shirt online to purchasing everything from a website. I was not alone. According to Digital Commerce 360, U.S. consumers spent $870.78 billion (about $2,700 per person in the US) online in 2021, up 14% from 2020 and a level we would not have reached until at least 2023. Despite a broad resumption of in-person experiences, this trend shows no sign of slowing down with online spending in the United States expected to hit a record $1 trillion in 2022.
That presents an incredible opportunity for banks and credit card issuers to capture more consumer spend. After digital and mobile wallets, credit is the most popular way to pay for online purchases. Yet as with any opportunity, there are threats. Credit card companies and banks face a slew of competition from fintech firms like buy now pay later unicorn Klarna, which has a pulse on how Gen-Z and millennials want to pay for their everyday purchases. That’s why credit card issuers and banks must find ways to engage these up-and-coming generations, who are leerier of debt than their parents.
With most Gen Zers citing “travel and seeing the world” as the top way they want to spend their money, travel rewards can be one of the most effective ways to gain their loyalty. However, simply offering these rewards is not enough to grow this credit-skeptic market and retain existing customers. In a time of incredible choice, financial brands that want to leverage travel to increase their share of wallet and keep their cardholders active and spending need to rethink their travel loyalty game and seek partners like arrivia that will help them turn their programs into full-fledged, digital-first platforms.
Loyalty rewards and the value problem
The modern financial services industry has always been a competitive space, and customer retention is the key to success; an often cited (but still true!) axiom is that a 5% increase in customer retention can result in 25%-95% revenue growth. Loyalty programs are meant to incentivize this behavior by providing customers with rewards like cashback bonuses and points that can be exchanged against goods when they spend using their cards. Unfortunately, many programs aren’t generating the retention and engagement they could.
According to a recent arrivia survey on consumer attitudes and preferences around loyalty and travel, 81% of credit-card holders belong to five or more loyalty programs. In comparison, 56% belong to a loyalty program with travel benefits. Though adoption is high, points redemption, which is one of the most important KPIs loyalty marketers must measure engagement, is comparatively low. That’s because the value of rewards often fails to meet customers’ expectations.
That isn’t a secret. In another arrivia survey around travel loyalty, we asked industry decision-makers about some of their biggest pain points regarding their loyalty programs. Almost 30% of respondents said they struggled to demonstrate the value of their rewards to customers, while another 19% admitted to not being able to offer customers the variety of rewards that they want. These numbers are even higher when filtering the responses of decision-makers in the financial sector (26% and 23%, respectively).
Putting the value back into loyalty through travel
For a modern loyalty program to successfully attract and retain its members, it must:
- Offer a variety of highly attractive rewards
- Provide excellent customer service
- Make it easy to accrue and redeem points
- Provide an omnichannel, personalized experience
When it comes to rewards, our research shows that travel is one of the most attractive redemptions available, with nearly half of the consumers we surveyed in January 2022 saying it is “extremely” or “very” important that they can redeem rewards or points when booking travel. This number jumps to almost 60% for Millennials and Gen-Z. That should come as no surprise as these younger generations are well-known to put a premium on experiences over goods.
In fact, Gen-Z travelers are much more likely than Baby Boomers to use travel points to book an exclusive trip or activity unavailable anywhere else. Though they might be wary of debt, they crave the perks of credit card programs.
Yet, according to our survey, many consumers (53%) say their financial institution offers no travel rewards at all. And when they do, they provide limited options instead of the ability to book their entire trip through their rewards program. Credit card companies and banks that go beyond the big three — air, car, and hotel — to include options like exclusive experiences, cruise and alternative accommodations are more likely to capture a bigger share of their customers’ travel spend and a sizable portion of their everyday spend. By setting up a dedicated booking platform that they fully control, they can generate more revenue on their travel products.
Personalizing the travel rewards experience
Offering the ability to book travel is one crucial aspect of successful travel rewards programs. The next step is incentivizing customers to redeem their loyalty points and maintain engagement with the program. That means doing away with the blanket, one-size-fits-all approach utilized by so many reward programs. With the right technology partner like arrivia, financial brands can leverage the information members share through their profiles and online activity to craft attractive offers that speak directly to an individuals’ actual desires. According to our Q1 US travel loyalty survey, this is particularly important to digital natives who are more likely to seek trip inspiration from social media and their friends than older generations.
We also found that 23% of surveyed consumers incorporate their travel loyalty programs into the inspiration phase of their planning process, consulting those sites to discover high-value trip ideas. In this context, a dynamic travel booking platform that highlights relevant travel offers based on an individual’s profile is an influential sales tool to increase conversions and redemptions. However, a static platform with no personalization might do the opposite and erode users’ trust in the platform’s ability to deliver the value they are looking for.
Capitalizing on the travel rebound
After two years of starts and stops, travel is back. In our survey, 69% of respondents said they plan to travel in 2022, while 24% had already booked their trip. But just as they did before the pandemic, consumers prioritize value— an exclusive discount, a good deal on a vacation package or using reward points to defray the cost of a luxury trip. Credit card companies and banks can satisfy this pent-up wanderlust by ensuring their travel rewards programs provide customers with the travel and booking options they want and savings they can’t find anywhere else. If consumers’ loyalty programs can’t or won’t meet these expectations, they will book – and spend – somewhere else.
Loyalty program technology is part of why companies aren’t meeting their members’ expectations. Our travel loyalty report found that 39% of surveyed business-decisions makers said their program members could not book travel directly through their platform, which is a missed opportunity to capture their travel spend. Companies are also in danger of missing out on the travel rebound because they haven’t adapted their travel rewards strategies to customers’ and members’ changing priorities. They either haven’t expanded the variety of travel options available or taken steps to streamline their earning and redemptions processes or explored new ways to pass on value to their members or incentivize additional travel spending.
Consumers – particularly the younger generations – have clearly articulated their preferences when it comes to travel rewards: they want value, they want options, and they want a one-stop-shop. And as they prepare to travel freely again this year, they will be turning to their loyalty programs. With the right technology partner like arrivia, your rewards program can meet their expectations, capture a bigger share of travel rebound spending, and create more loyal, engaged members along the way.
About the author
Travis Markel is arrivia’s Chief Experience Officer. With more than two decades of experience in travel and loyalty, Travis helps financial service firms and other companies with travel reward programs build long-lasting relationships with their customers.