Big Data Drives ‘Loyalty Trifecta’ for Banks

With their rewards programs no longer fueled by interchange income, banks are looking to ‘big data’ and mobile capabilities to build customer loyalty.BYJAMES MAROUS
Feb 28, 2012  |  0 Comments

In a post-Durbin Amendment environment, financial institutions (FIs) are faced with the challenge of changing the foundation of rewards programs that were previously funded by interchange income from both credit and debit cards. With debit interchange funding gone, banks still need to continue to find ways to improve bank loyalty and drive the desired debit and credit transactional and balance behavior. In addition, financial institutions need to better leverage “big data” and the mobile shopping phenomenon in the hopes that they can replace some of the revenue lost as a result of Reg E and the Durbin Amendment.

Optimally, the future of rewards and loyalty will allow banks and credit unions to take advantage of the “Loyalty Trifecta,” my term for bringing together the benefits of 1) transactional insight, 2) targeted offers/communication as well as 3) mobile marketing and payments.

These topics will be discussed at the upcoming BAI Payments Connect 2012 Conference & Expo in a panel discussion that I will moderate entitled “Rewards in a Mobile Banking Environment” with participation from Tom Beecher, CEO, Cartera Commerce Inc.; Rob Heiser, President and CEO, Segmint; Schwark Satyavolu, CEO, Truaxis; and Rod Witmond, senior vice president, Product Management & Marketing, Cardlytics Inc.

Prior to the conference, I posed the following questions to my co-panelists to assess their preliminary stance on these issues:

Q: What’s the current status of the banking rewards environment today and how can it be improved upon?

Beecher: The scope and strategies for banking rewards have changed dramatically in the past two years. Durbin has forced banks to re-imagine how loyalty programs are designed and funded. Also, the development of card-linked offers – where consumers earn cashback or points when using their bank’s payment card at participating merchants – has opened up new incremental revenue opportunities for banks. Finally, the growth of Groupon and deals in general has made consumers (and banks) much more aware of the power and importance of local merchants and online offers.

Witmond: Previously, U.S. banks brought offers to customers in a separate section of the bank website – often referred to as an “online mall.” Only a small percentage of their customers went there. It was not a loyalty solution. Various bank rewards solutions required the customer to enroll their card at a separate site and then hope they remembered to shop at a group of merchants providing lackluster discounts. Low engagement or difficult-to-use approaches won’t strengthen a retailer’s relationship with customers or move the needle on sales – for the merchant or the bank.

The banks’ business cases for the early generation, merchant-funded rewards programs promised significant earnings to the banks driven by large revenue shares. For the reasons stated above, retailers did not see these solutions as adding value to their current marketing mix and budgets did not shift. U.S. banks ended up with a big piece of a very small pie. New enhancements from loyalty vendors have refined the early approaches on several fronts.

Satyavolu: Most banking rewards in the past had four defining aspects: 1) they were mostly available on credit cards and less frequently on debit cards (due to being funded by interchange from merchants); 2) they were mostly one-size-fits-all (everybody gets the same extra points/cash-back on certain categories whether or not you shop there); 3) they were typically limited to cash-back or points back benefits; and 4) merchants were not involved in the creation of these benefits.

Heiser: The way FIs interact, engage and communicate is driven more and more by their customers’ technological lifestyles. While merchant-funded reward programs were one of the first to react to this shift, success today involves the application and technology adoption that is driven by transaction intellect − knowing and understanding the needs of customers.

Q: How can your own solution be leveraged in a mobile environment as opposed to an online banking or bricks and mortar environment?

Witmond: The Cardlytics solution is already leveraged in a mobile environment. We have bank solutions for SMS, mobile, and email in the marketplace. Additionally, we have ATM and social media solutions close to deployment. Most banks start with online banking because it provides the greatest exposure to the rewards platform. However, they quickly recognize the value of extending into mobile applications where they have complete control over the data and data fields. As such, they can drive mobile solutions at their own speed. Where a bank cannot deploy a mobile solution quickly, we offer a white-label mobile solution that can be deployed alongside or within an existing FI application.

Beecher: Mobile is an increasingly important channel for communicating with consumers -- particularly with the growth of in-store (national and local) offers. Cartera powers mobile apps that show consumers where they can use their payment card to redeem card-linked offers from nearby merchants. As Cartera partners roll out support for mobile wallets, this capability will become even more powerful by enabling consumers to find and redeem offers entirely via their smartphone.

Satyavolu: Truaxis’s StatementRewards product easily integrates with a FI’s existing mobile banking app to provide additional benefits to banking customers. Through the existing mobile app, bank customers will be able to view all of their rewards, both purchased and available, via the user dashboard. From this user dashboard, customers can instantly view, purchase and redeem rewards directly while they’re on the go.

Heiser: Segmint is not a merchant-funded rewards provider and, as such, our philosophy is grounded on generating loyalty through digital engagement with customers. Segmint is device-agnostic and can deliver across virtually any electronic medium. There is no doubt that opportunities exist within the mobile environment, but as with all mediums/channels, success revolves around the actual content delivery.

Q: What innovation do you see on the horizon around loyalty and reward platforms, both in banking and non-banking industries, in terms of leveraging social media?

Witmond: We have banks that have already designed how our solution can extend into social media and are deploying the same. The challenge with social media is that it is a “social experience” all about engaging on a person-to-person basis. That being the case, the extension of the core platform into social is only the first stage and the true challenge is in making the rewards solution one that engages on a person-to-person basis.

Beecher: Innovations in payments, big-data-driven marketing, and loyalty are all merging together to form what will ultimately be a new playbook for companies in these spaces and a new set of winners, including the new card-linked offers space. Mobile payments are seeing new non-banking entrants, all realizing that the incorporation of offers into the wallet is central to consumer adoption.

One of the new frontiers of leveraging big data with marketing is anonymous payment data, where new technologies and entrants are helping banks use transaction data that preserves privacy and provides real benefits to consumers. An example would be my purchase at McDonald’s alerting Burger King to make an offer to me. The entire funding model for bank loyalty programs is being turned on its head with merchants paying consumers through banks to shop with them rather than banks focused on taking money from merchants (through interchange) and then funding rewards themselves.

Satyavolu: The biggest innovation for these platforms will be the continued use of data to drive personalization and cut-costs. Both banking and non-banking industries are sitting on piles of data that they both don’t have the resources to utilize and if they did, they wouldn’t know where to begin. By working with third-party vendors like Truaxis, these companies will finally be able to utilize this data through innovative new techniques.

Analyzing transaction data from FIs is only the tip of the iceberg. As these platforms become more integrated across multiple channels and industries, companies will be able to understand and connect with their customers to provide them with the most value and ensure that each customer has a completely personalized experience that provides them with exactly what they need and want.

The data buried in social networks adds an interesting new twist to the personalization capabilities that are made possible, when you add them to the transaction data streams that FIs already have today. The concept of loyalty marketing will undergo a quantum shift in how it operates and who is in the key enabler seat for merchants, where FIs have a huge opportunity and upside to facilitate these interactions.

Heiser: Social media is a huge game changer for FIs and will become the “biggest bank branch” they operate. With nearly a billion active monthly users on Facebook, FIs must become socially actionable and interact with customers in their channel of choice. Last year Segmint introduced SegmintSocial, our social media technology solution that gives FIs the power to precisely identify their customers on the bank’s Facebook page, customize their experience and engage them in real-time, personalized dialogue.

Mr. Marous is senior director, marketing services, at San Antonio, Tex.-basedHarland Clarke Corp., and authors the Bank Marketing Strategy blog atjimmarous.blogspot.com. He can be reached at james.marous@harlandclarke.com.

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How new Internet standards will finally deliver a mobile revolution

As the Web experience evolves, smartphones may soon live up to their name, and every business’s mobile strategy will grow in importance.

APRIL 2011 • Bengi Korkmaz, Richard Lee, and Ickjin Park

Source: High Tech Practice

In This Article

• Sidebar: Winning the Web standards battle

• About the authors
• Comments (17)

An arcane-sounding change with potentially significant implications for consumers and businesses is under way on the Web: the shift to a new generation of HTML,¹ the programming standard that underpins the Internet. Senior executives, regardless of industry, should take note; like the exponential growth of device-specific applications, this evolution of HTML will further boost the power of mobile devices, accelerating changes in the way people consume content and the potential use of smartphones and tablets as both a marketing platform and a productivity tool.

The next generation of the Internet standard essentially will allow programs to run through a Web browser rather than a specific operating system. That means consumers will be able to access the same programs and cloud-based content from any device—personal computer, laptop, smartphone, or tablet—because the browser is the common platform. This ability to work seamlessly anytime, anywhere, on any device could change consumer behavior and shift the balance of power in the mobile-telecommunications, media, and technology industries. It will create opportunities and present challenges. This article seeks to provide a primer on these changes for senior executives, who may feel the effects of the move toward “Web-centricity” much sooner than they think.

Web-centricity

In some ways, the evolution of mobile technology resembles the battle among PC makers in the 1980s. While we today take it for granted that Microsoft’s Windows operating system underpins hardware from countless manufacturers, it wasn’t always that way. Remember the operating systems that powered the Commodore 64, the biggest-selling PC of all time, or the Apple II? Before the emergence of Microsoft’s DOS and then Windows, PC users faced a tough decision about which technology to adopt, because that determined the games and utilities they could use, as well as the general usefulness of their computers. The same occurs today with mobile devices. Users must weigh the hardware and software merits and commit themselves to a technology, whether it’s a device from manufacturers such as Apple or Research in Motion, the ever-increasing array of tablets and smartphones running Google’s Android operating system, or, soon, offerings from Nokia running on Microsoft’s Windows Phone 7 operating system.

The next generation of HTML, known as HTML5, may narrow these differences between mobile devices. HTML5, the most significant evolution yet in Web standards, is designed to allow programs to run through a Web browser, complete with video and other multimedia content that today require plug-in software and other work-arounds. In theory, this will make the browser a universal computing platform: without leaving it, users could do everything from editing documents to accessing social networks, watching movies, playing games, or listening to music. Not only would any device with a Web browser have these capabilities, but consumers would also have access to all content stored remotely “in the cloud,” independent of locations and devices.

That’s the first reason Web-centricity holds particular promise for mobile devices. The second is that it helps overcome the relatively weak processing power of smartphones and tablets compared with PCs and laptops. It’s partly this lack of horsepower that has fuelled the explosive growth in applications (or “apps”) to optimize the performance of specific devices: the average smartphone user now spends more than 11 hours a month using apps, more time than either Web browsing or talking, according to a March 2011 study by research firm Zokem. HTML5 has the potential to improve the mobile experience—its specifications enable browsers to locally store 1,000 times more data than they currently do, so users can work when offline—writing e-mails, for example—and their devices will automatically update when a network becomes available. What’s more, programs and applications run faster because complex processing tasks are handled by network servers, although mobile-network capacity must go on growing to deal with heavier data demands.

 

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	Winning the Web standards battle

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Of course, not all programs are suited to running through browsers, nor is HTML5 the first would-be universal platform to emerge: Sun Microsystems (purchased by Oracle in 2010) promised that with its Java language, programmers could “write once, run anywhere.” Things haven’t worked out that way. And there’s never a guarantee that one kind of standard will prevail (see sidebar, “Winning the Web standards battle”). The rate at which developers are writing apps and consumers buying them is dizzying, and ingrained behavior can be hard to change. Web-centricity may raise security fears among users because programs are no longer installed on specific devices and because data are stored remotely. And there could be fragmentation issues with both the standard and the browsers—after all, existing ones, such as Google’s Chrome, Microsoft’s Internet Explorer, and Mozilla’s Firefox, don’t all treat the current standard, HTML4, the same way.²

Despite these possible headwinds, the number of HTML5 Web sites is increasing by the day. Hardware manufacturers are lining up behind HTML5, and the development community is undertaking efforts to safeguard data in the cloud at a very fast pace. We therefore estimate that more than 50 percent of all mobile applications will switch to HTML5 within three to five years—and the rate of transition could be considerably higher and faster. No matter how quickly the shift occurs, it will affect both consumers and businesses significantly.

Consumer impact

Consider a simple task many consumers currently use mobile devices for: reading news headlines. Today, that requires accessing a specific Web site—often a sluggish exercise in frustration—or separately installing an application on every device used and, for those that charge a fee, paying each time. With Web-centricity, a single application can theoretically be accessed from any device through a browser—pay once and you’re done. And because all content is stored in the cloud, billing information and preferences can be seamlessly shared and accessed, and all devices remain in sync. A consumer can start reading an article on a tablet and then switch to a laptop, picking up where she left off. In a more advanced example, she could start an instant-messaging or video-chat conversation on her desktop computer and continue it on her smartphone. The bottom line for consumers: Web-centricity represents a major step toward genuinely “smart” devices that offer the same simple, relevant, and personalized experience everywhere.

Industry impact

These changes to consumer behavior may affect the economics of industries ranging from telecommunications and media to technology and even advertising. As Web stores selling applications that can be used across devices proliferate, for example, cutthroat competition may leave ad agencies reminiscing wistfully about the days when they could claim up to 40 percent of every dollar of mobile-advertising revenue. Consider, briefly, the implications for the following players in a world where content is everywhere and the relative importance of operating systems and Web browsers for creating and distributing programs and applications is shifting.

Software developers. Application developers currently pay a fee of up to 30 percent to device makers, telecommunications operators, or operating-system developers whenever an application is sold to a consumer. In a Web-centric world, developers can avoid these intermediaries: not only can the same application be sold across all devices but anyone can set up a Web store and sell directly to users. Google, for instance, is already charging application developers a distribution fee of about 5 percent through its Chrome Web store.³ In addition, the emergence of an open platform will probably motivate bigger enterprise software companies to introduce—and quickly—mobile-based programs for managing customer relationships, marketing, and supply chains.

Telecom operators. Web-centricity may be a double-edged sword for telecom players. On the one hand, it will spur demand for mobile-Internet services, create opportunities for operators as consumers seek applications that work across multiple devices, and loosen the grip of native app stores. On the other hand, there’s no guarantee that operators can make money with new apps, the likely surge in data traffic will require significant investments in network infrastructure, and operators may face increased competition from companies offering Web-based mobile-voice and -video services.

Content providers. Web-centricity should provide revenue and savings opportunities for content providers. On the revenue side, the ease with which consumers can access Web-centric content on the go should stimulate their interest in more relevant, timely material. Moreover, the seamlessness with which consumers can access HTML5 content across devices could create more opportunities for providers, such as television and movie studios, to offer consumers programming directly or to work through aggregators such as Apple’s iTunes. Finally, advertising could support additional mobile content. Fragmented mobile platforms today make it hard for online publishers to manage ad inventories across a broad range of users. Advanced features such as consumer targeting and measurement may migrate to the mobile-Web environment. Of course, this development will no doubt attract entrants and intensify competition, making the new environment as challenging as it is dynamic.

Savings, a secondary benefit, come from avoiding the cost of converting an application from one platform to another (today, typically around 50 percent of the original development cost). Newspapers and magazines, for example, should be able to create content once and deliver it seamlessly across multiple devices, lowering production costs and increasing reach.

Device makers. Web-centricity will probably make consumers more “device agnostic,” and that will in turn reduce the ability of players to control an ecosystem of developers and could accelerate the commoditization of mobile devices. The shift does, however, create opportunities. Manufacturers will be able to better and more easily integrate software and hardware experiences within and across devices. They can try to develop compelling cross-device applications and speed up the push to make synchronizing and storing data across devices easier. Finally, they have some control (along with operators) in choosing the default set of Web-centric services and applications embedded in devices.

What it means for senior executives

Consumer uses propel many innovations associated with Web-centricity. Yet it could ultimately provide a range of benefits for companies as information technology moves to Web-centric platforms and away from the current hard-wired infrastructure and applications. These are enterprise-level issues, and any CEO who isn’t confident that the organization is grappling with them should start pushing the senior team to understand their importance.

The CMO

The emergence of the “m-dot revolution”⁴—the increasingly strong tendency of consumers to use mobile devices to access company and product information—will have its greatest impact on chief marketing officers. Many companies are already experimenting with innovative smartphone applications; Volkswagen, for instance, has released a popular racing game for the iPhone. Companies will be able to continue taking advantage of the enhanced power of mobile Web browsers to create compelling experiences directly for users. In addition, CMOs will need to push their teams to develop compelling mobile-advertising strategies that go well beyond merely inserting ads into applications, as many do today. HTML5 should create opportunities to use video advertising more often, for example, and the development of robust mobile capabilities may spur the evolution of marketing tactics such as the monitoring of shopping activity to deliver real-time, location-specific coupons.

The CIO

Web-centricity puts additional pressure on organizations to invest in corporate cloud infrastructure. Chief information officers should, for example, prepare for the day when consumers, employees, and suppliers all communicate and interact through the use of mobile devices that run Web applications. This phenomenon will not only extend the reach of the enterprise but also place a premium on analytics and possibly improve the competitiveness of companies that can exploit the new information and interactions a Web-centric environment provides.

CIOs will have to decide whether costs can be cut and productivity increased by introducing rich applications both horizontally, across industries (for example, enterprise customer-relationship-management systems such as Salesforce.com), and vertically, within industries (say, mobile electronic medical records in health care or smartphone-based claims processing in insurance). Web-centricity also promises smaller productivity improvements, such as allowing users to store content locally for later uploading. Employees will therefore be able to work without being connected to the Internet—for instance, when they’re on airplanes.

The CEO

From the perspective of the chief executive officer, Web-centricity should be part of a broader imperative to elevate the importance of mobile marketing in corporate strategy. CEOs will need a response when, as must inevitably happen, they are asked how their companies are dealing with the m-dot revolution, which introduces a mobile element into everything from commerce to advertising to public relations. What’s needed is not just the coordination of mobile initiatives from functional offices, however. CEOs must take a big-picture approach to the collective implications of Web-centricity, the way it redefines a company’s interactions with employees and customers, and the challenges and opportunities it presents.

Of course, Web-centricity will require spending money to make money. Organizations will have to make IT investments, particularly for cloud-based computing and mobile platforms. Employees, especially in sales and operations, will need training in the art and science of mobility if companies are to maximize cost savings and productivity improvements. Yet Web-centricity also promises to make the mobile-Internet experience more open, complex, and dynamic. It may change the way consumers and enterprises behave. Even if companies don’t understand the technical aspects of this transition, they must master the technology’s potential and possible ramifications.

About the Authors

Bengi Korkmaz is an associate principal in McKinsey’s Istanbul office; Richard Lee is a principal in the Seoul office, where Ickjin Park is an associate principal.

The authors would like to acknowledge the contributions of Paul Choo, Michael Chui, Jinwook Kim, and Johnson Sikes to the development of this article.