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Banks are experiencing a sea change in the competitive landscape from an increasingly fragmented set of nascent fintech competitors and the platoon of “Buy Now, Pay Later” startups and in addition to traditional competition from other banks and the newer
payments competitors such as PayPal. This year alone, almost 3,000 new fintechs have been minted; all with the express purpose of taking market share from traditional financial institutions.
The new competitive set is gaining share with a 1-2-3 punch. First, they’re addressing niche consumer verticals, such as “banks for vegans” or the
formerly incarcerated. Second, they’re reducing or outright eliminating fees, including ATM, overdraft and other service fees. And third, they’re offering increasingly attractive rewards for retention, loyalty and customer acquisition, often passing nearly
all interchange revenues to consumers, and then some.
The tough question is how will banks compete and retain customers, in spite of the fragmenting landscape? As banks seek to compete with lower fees and richer rewards to retain existing customers (and acquire new ones), they face the risk of reduced revenue
per customer; and replacing this lost revenue is critical.
The good news is, banks have an alternative at their disposal that can be used both to replace this dwindling fee revenue stream and provide financial rewards to customers, thereby driving customer loyalty and increasing share of wallet. That alternative
comes in the form of shopping rewards and cashback driven by e-commerce.
Enter shopping rewards
Rewards funded by merchants are nothing new. When a customer makes an online purchase, merchants often pay the referring source a small percentage of the sale (known as a rev-share or a commission). You’re probably familiar with this model – it’s classically
known as referral or affiliate marketing. E-commerce brands actually have dedicated affiliate marketing budgets that fund these commissions.
Merchant-funded rewards are one of the most impactful tools available to financial institutions who seek to increase revenue and create repeated positive interactions for their customers, thereby increasing loyalty. Thanks to the growing penetration of these
types of programs, consumers are already familiar with (and downright expect) these benefits.
Fund your customer retention and loyalty with online shopping rewards
E-commerce rewards programs are great news for banks because they create an entirely new revenue stream — funded completely by online merchants’ marketing budgets. The commissions earned by the banks effectively become an additive “loyalty margin” that
they can choose how to “spend against” and creatively deploy as rewards in order to benefit their customers and increase loyalty. And, perhaps the best part of all… merchant-funded shopping rewards revenue stacks on top of interchange and other payment rewards
such as points and miles.
In the past, banks have dabbled in customer rewards programs such as offer walls and card-linked offers. But these have several disadvantages, including high level of effort to integrate and deploy, and low customer participation. Companies that have launched
offer walls and card-linked offers report as little as 2% of their customers actually use these programs, driven in large part by the unnatural detours which customers must take during their online shopping journeys to activate such offers.
The modern take on shopping rewards flips the script and meets the customer where they are in their natural shopping journey. Shopping companions for desktop and mobile shopping are designed to present customers with valued offers, including cashback, coupons
and discounts, at critical touch points during the course of their typical online shopping path. This is accomplished through tools including desktop browser extensions, mobile app features, and search engine integrations which intelligently alert the customer
of cashback opportunities, coupons and related offers at the exact right moments within users’ online shopping flows, without taking any unnatural detours or steps to activate and redeem offers.
Forward-thinking leaders in this industry are already taking advantage of these platforms. Consider Capital One, whose Capital One Shopping browser extension came from their acquisition of Wikibuy in 2014 and boasts millions of users, and Honey, which was
acquired in 2019 by PayPal with over 17 million users. While Capital One and PayPal chose to buy and build their programs, others choose to partner with white-label providers, which enables speed-to-market, superior feature sets, and lower cost. For example,
Acorns offers a similar program, powered by our platform, that enables Acorns’ users to earn cash back from shopping online at thousands of merchants, which then gets deposited in their investment accounts. These companies are creatively using their online
shopping companions to accompany their users on their e-commerce journeys, thereby rewarding customers and driving loyalty, while earning substantial revenue from merchant-funded commissions at the same time.
Deployment of these tools is straightforward. First, the bank provides and markets shopping companions to its customers, who then simply enable the feature within the bank’s app or add the browser extension to their desktop, and then they shop as normal.
The companion alerts the customer whenever benefits are available and with a single tap, customers activate cashback or coupons. There is no account to open, no credit check, and no card-linking, and the consumer starts immediately earning cash back or other
rewards for their purchases, brought to them by their bank.
The bank gets paid a commission by the merchant and then the bank pays the customer a portion of that commission as a reward for using their shopping tool. In essence, the bank is tapping the e-commerce merchants’ affiliate marketing budgets to fund their
customer retention, loyalty (and in some cases acquisition) programs.
E-commerce shopping rewards programs are a rare example of a win-win-win scenario. Customers win through shopping rewards and discounts. Banks win with increased revenue, along with customer retention by positioning themselves as the benefactor of tangible
customer benefits. And merchants win from the higher conversion rates, increased average order value and reduced cart abandonment rates which these programs consistently deliver.
Since these shopping companions are linked to the user and their device(s) rather than their card, the rewards are “tender-neutral,” meaning banks and their customers can earn rewards regardless of which tender is used, and this opens a broader opportunity
to provide benefits to both cardholders and non-card banking customers.
E-commerce rewards programs leveraging shopping companions also help banks break free from their traditional place in the “back-office” of consumers’ lives, bringing banks front-and-center with customer benefits. In effect, shopping rewards programs transform
the otherwise transactional nature of customers’ association with their bank into a higher-touch relationship with relevance to customers’ financial wellness.
With such programs, banks not only build new revenue streams, they also reinforce in customers’ minds that their bank is a partner, helping them with financial wellness, throughout all aspects of their life.
Financial Services
