As we head into 2022, it’s time to start looking at the trends that we see taking shape in the banking and financial services sectors. This is what we’re hearing and seeing from our partners in the banking industry and beyond as trends that will continue
to take shape over the coming year.
1. Loyalty programs will become table stakes. Loyalty programs, namely cashback and e-commerce coupon offerings, are on the rise, serving as key differentiators for players like PayPal (with their acquisition of Honey) and Capital One Shopping. We expect
more financial institutions to deploy similar rewards programs to create customer value, retain existing customers, and acquire new customers at lower cost in 2022.
It’s no coincidence that e-commerce rewards are the newest battleground in the war for customer loyalty, given the huge increase in online shopping which accelerated even more over the past two years. Consider too, that cashback has become the preferred
reward currency among consumers in general. With inflation on the upswing, customers are looking for ways to maximize their money and offset costs from rising prices with cashback rewards rather than saving points or credits towards future purchases. Thus,
cashback rewards are a perfect answer for people seeking to drive more value from the online shopping they already do almost everyday.
In addition, cashback and rewards programs are now just expected by today’s banking customer. An August 2021 survey of banking customers by American Banker/Monigle Agency found that “...rewards and loyalty remain paramount to the customer experience, regardless
of the type of financial institution or product.” Further, as Monigle’s Senior Director of Strategy Brian Elkin
noted: reward programs can incentivize customers to use the services of, and “‘foster emotional connections” with their bank or credit union, “deepening ties and loyalty.”
To defend against the threat of customer attrition, more banks need to incorporate features to drive customer loyalty and offer customers more value. Using e-commerce merchant budgets to give consumers shopping rewards that enable cashback is a means to
not only create new income streams, but also to provide crucial added value for customers and increase customer loyalty.
2. Banks will need to diversify their revenue streams. Due to an increasingly fragmented set of challenger banks and “Buy Now, Pay Later” (BNPL) startups, as well as traditional competition from other banks and the newer payments competitors such as PayPal,
FIs face an increasingly competitive landscape.
This new competitive set is gaining share from traditional banks by pressuring them on three fronts:
These startups are going after niche consumer verticals, such as “banks for vegans,” the LGBTQ community, or the
They’re reducing or completely eliminating fees, including ATM, overdraft and other service fees.
Finally, they’re offering ever-increasing rewards for retention, loyalty, and customer acquisition, often passing nearly all interchange revenues to consumers – and then some.
As banks compete with the threats of nascent competitors by
matching their offers of reduced or waived fees, replacing this lost fee revenue is critical. However, it’s not just about the revenue - ultimately it’s a battle for long-term customer loyalty too.
Banks will need to think one step ahead to determine not only how they can preserve revenue, but also remain relevant and retain their customers.
Here again, we predict that more banks will need to creatively come up with ways to leverage alternative budgets that merchants make available (via marketing funds, for example) which reward their customers with cashback and other incentives, offering value
at critical touchpoints during the course of their typical online shopping path.
Banks will need to incorporate offsets to lost fee revenue, and position themselves as a helpful partner or “shopping companion” to customers. By leveraging tools like browser extensions or apps with e-commerce cashback rewards, banks can build new revenue
streams and reinforce the notion that they’re a partner, helping customers with financial responsibility through rewards for the online shopping they’re already doing.
3. Banks must become more aggressive to win the ‘tender wars.’ Alternative payment types are rising in popularity, and banks and card issuers are facing challenges for share-of-wallet on e-commerce purchases like never before. Tools such as “Buy Now, Pay
Later,” PayPal (and its own BNPL feature), and digital wallets are capturing more share of wallet at checkout.
BNPL as a payment type chosen by consumers for e-commerce purchases has increased by an estimated 60-70% in 2021 vs. 2020, per
Bain. Digital wallets (including Google Pay and Apple Pay) as an e-commerce payment method
gained 6 percentage points of market share in 2020 compared to 2019. And this is on top of PayPal as a payment type already offered on over
20 million e-commerce sites and having about
30% market share at checkout.
The increasing choice of payment types is making it hard for card issuers and FIs to stay top of mind and top of wallet. The alternate payment methods noted above are getting in front of consumers earlier, and in more relevant placements, during their online
Not only do they take away wallet share at the point of checkout, but these companies also market their tender type before the point of purchase. For example, they offer “bonuses” such as increased rewards when that tender is used in a purchase. They aggressively
market these promotions directly to their customers.
So where does this leave traditional financial institutions and card issuers? Banks/card issuers will need to become equally aggressive. They’ll need to innovate while they still have a chance to.
In order to retain share-of-wallet and establish primacy as the preferred tender type, banks must find tools which position their tender as the preferred choice, and do so higher up the purchase funnel. It’s not enough to simply be present on the checkout
page, but instead, to position a given banks’ tender type as preferred even before the customer adds an item to their cart.
For example, banks/FIs can incorporate a loyalty program with cashback rewards - allowing the customer to earn back part of their purchase when they use a given tender/card. In this use case, the cashback reward can act as a psychological magnet which, when
activated, draws the customer through to complete a purchase with the preferred tender type in order to “earn” that cashback.
The key is to creatively use promotional tools and features like these to get in front of a customer before they’ve even chosen a merchant to shop with.