As we approach the mid-year point of 2024, banks, credit card networks, and other financial services companies face some headwinds affecting their loyalty approaches. While consumer credit increased by 1.5% in April, per the latest Federal Reserve Board report, persistently high interest rates are beginning to take a toll on lending institutions. The challenges are widespread: Bank of America reported that its net charge-offs increased by more than 80% in the first quarter compared to last year. Regions Financial cited higher credit costs and operating expenses for its 1Q earnings decline.
These rate-based shortfalls are compounded by a longer-term trend of weakening loyalty across the sector. According to Vericast’s 2024 Financial Services Trendwatch, consumers hold accounts with 2.6 financial institutions (on average), and 46% are open to switching or using other banks for specific needs. This partially explains why global analyst WARC’s latest report identifies declining loyalty as one of the five major trends impacting banks and other financial institutions in 2024.
The three trends identified in this article represent a reaction to the current environment. Banks and other financial services companies are broadening their rewards strategies to capture and retain customers, preparing for new reduced swipe fees, and creating more positive digital loyalty experiences for their most valuable customers.
Expanding reward and redemption options
The first notable trend at the midpoint of 2024 is the steady expansion of credit card rewards and redemption options. In the State of Loyalty: 2024 Credit Card Rewards, our 3rd annual analysis of the credit card rewards ecosystem, we found card programs expanding their rewards portfolios across the spectrum. Issuers are also introducing new ways for cardholders to redeem their points, diversifying the range of lifestyle and everyday rewards they make available to their customers. Card issuers’ loyalty strategies seem to be rooted in providing more options and recognizable value to consumers, aligning with their priorities for their relationships with their financial institutions.
It also reflects consumers’ expectations: in a 2024 global consumer trends report, Mintel found that 77% of banking customers expect to be rewarded for their loyalty. Simply offering rewards is the baseline; card issuers want to differentiate themselves by improving both the quantity and quality of the rewards on offer. We can expect this trend to continue, especially as competition increases.
Preparing for a new swipe fee reality
This expansion of rewards and redemption opportunities to communicate value to cardholders may unexpectedly benefit financial institutions. As the settlement between merchants and Visa and Mastercard reducing transaction fees (or swipe fees) takes effect later this year or early next year, card issuers must prepare for reduced revenue associated with those fees. The Credit Card Competition Act would ostensibly cut further into swipe fee revenue for card networks and issuers. Though it may face uncertain legislative prospects and a longer implementation timeline, preparing now is perhaps more urgent.
What exactly will card issuers and networks have to prepare for? As we discussed in a recent article on this subject, increased competition for the highest-value cardholders and account holders might be the most anticipated outcome of the swipe fee change. Many pundits expect credit cards to curtail rewards to preserve profitability but to attract new cardholders and retain existing ones; banks will have to leverage innovative rewards beyond traditional points and miles to capture a larger share of wallets.
We may also see issuers cater more directly to their cardholders’ unique earning and redemption preferences. This will require a robust rewards portfolio comprising microburn redemption opportunities and aspirational, big-ticket travel rewards. Expanded rewards portfolios will make it easier for all financial services loyalty programs – not just credit cards – to deliver personalized value by analyzing individual spending habits and targeting rewards accordingly.
Streamlining and enhancing the digital experience
Many banks have invested in digital technology to enhance the customer experience and provide convenient, accessible banking services. That commitment needs to carry over to the loyalty program experience as well, especially considering that 20% of loyalty program professionals working in financial services cited user experience as their program’s top challenge, according to our most recent Tipping Point report. Some of the largest and most recognizable financial services brands – including iSeatz customers – are taking incremental steps to streamline their digital loyalty portals, creating more brand-cohesive interactions across redemption categories, rethinking the user flow to prioritize accessibility, and adding new features that improve the overall experience for members.
We also expect this trend to continue, as a positive digital loyalty experience is increasingly integral to a positive overall impression of the financial services brand.
Despite the current macroeconomic challenges facing most banks, card networks, and other financial services companies, the trends we see at this point in the annual calendar strike an optimistic tone. These institutions are proactively pivoting their loyalty strategies to deliver added value and create better experiences for their valued customers.
In the process, they are giving themselves more flexibility in the form of expanded reward portfolios, a new competitive edge in the variety of travel and lifestyle redemption options they make available, and a more accessible digital experience that will resonate positively with members. As a result, when 2025 approaches, the financial services sector should be poised for a loyalty renaissance.
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