How Embedded Finance Is Redefining Customer Rewards
For years, loyalty schemes have been the default means for brands to build lasting relationships with their customers, encouraging repeat business. Since the first frequent flyer schemes of the 1980s, these programs have also been a valuable source of data for brands on client preferences and behaviour, which provide insights that can influence a company’s strategy. Recent research indicates that as many as 84% of consumers are more likely to stick with a brand that offers a loyalty programme, while a further 66% say that the ability to earn rewards influences their spending.
With consumer spending impacted by the cost-of-living crisis and businesses battling to hold onto customers, loyalty schemes are an important tool in the arsenal of brands of all sizes, but shifting consumer expectations are making it more difficult than ever to have their desired effect.
Currently, almost two-thirds of consumers say their loyalty is more difficult to maintain due to the higher cost of living, while 79% say that they don’t just want to accumulate points anymore. With this in mind, brands looking to upgrade their existing loyalty programs are turning to embedded finance to offer something more engaging.
What is keeping brands from better loyalty?
With greater competition for consumer engagement, the key to winning over customers today is offering real, tangible benefits. Amassing points will no longer cut it – 90% of consumers say that – because of rising prices – they are more interested in getting discounts, using coupons and earning cashback rewards as they shop.
A Capgemini study found that 63% of customers prefer loyalty programs that offer exclusive access to products, sales and premium services. Further research showed that 68% of respondents would join a customer loyalty program for brands they like, while 56% are willing to spend more with a brand even if cheaper options exist.
The link between embedded finance and loyalty
Loyalty programmes are a natural use case for BaaS. Through BaaS-enabled embedded banking, brands can add payment solutions to existing loyalty apps and cards. The linking of payment and loyalty offers the convenience to enjoy benefits like discounts or cashback when purchasing items – a concept that has been demonstrated effectively by Starbucks.
The Starbucks reward platform leverages embedded payments, enabling customers to load funds into a personalised Starbucks account, which allows them to pay in-store more easily, pre-order drinks for collection and earn exclusive rewards such as discounts and free drinks. This has led to a massive influx of funds on the platform, with more than $1 billion stored by users, more than 85% of banks in the US in deposits.
Target’s REDcard program is another visible case study of embedded finance-driven loyalty making a real difference. Customers using the card earn an instant 5% cashback on all purchases, helping them to increase their savings and incentivising repeat business. Cardholders were found to have increased their baskets by 50%, contributing to over $8.9 billion in volume annually and 12.1% of all Target sales.
Loyalty programmes can also benefit from flexible lending options powered by BaaS – products like Buy Now, Pay Later provide greater choice to customers at the checkout, while potentially driving a 20-30% increase in basket conversion.
New customers, new loyalty
Embedded banking has been a lifeline to many businesses in recent years, offering an opportunity to improve their customer experience in order to drive more engagement and conversion. The next frontier to win customer attention will be through the innovation of loyalty programmes, and smart brands are increasingly turning to embedded banking to bring even more convenience and value to their loyalty strategies.
About the author
Kim Van Esbroeck is Country Head for Aion Bank Belgium and Chief Revenue Officer for Vodeno/Aion. Kim is responsible for growing Vodeno/Aion’s business through commercial activities and business development. Aion Bank and Vodeno are commercial partners offering BaaS services in Europe, combining Vodeno’s API-based technology with financial products based on Aion’s ECB licence and regulatory and compliance expertise. Together, Vodeno/Aion are uniquely positioned to offer comprehensive embedded financial services for banks, lenders and merchants across multiple sectors.
