Introduction

With credit cards becoming increasingly commoditized, cardholder loyalty is an area of growing importance. This report examines the theory behind cardholder loyalty. It then illustrates these in practice by profiling many of the most innovative loyalty programs in the world. This report includes an analysis of the latest chip based loyalty schemes and concludes with a "Key Learning" section.

Scope

Focuses on loyalty programs attached to payment cards. Examines and profiles some of the most successful and innovative loyalty schemes in the world. The research is global in its scope, examining programs from the Middle East to North America. Conclusion draws upon examples in the report to answer the question of what makes for a successful loyalty program.

Highlights

The range of rewards is important to make the scheme attractive to all levels of spenders. A program with fantastic rewards will not be attractive to a low spender if $10,000 needs to be spent before a reward can be claimed. Whilst chip based systems are ideal for large multi retailer schemes, they might not be a realistic option for a small issuer which might not be able form a big loyalty scheme or afford to re-equip a chain of partner merchants with new POS terminals. Just as important as the rewards themselves is the opportunity for cardholders to accumulate points to be able to claim these rewards. The easier it is for a cardholder to amass loyalty points, the more attractive the program will be to a broad range of consumers.

Reasons to Purchase

Understand the secrets to successful payment card loyalty Learn what action the leading card issuers are taking to attract and retain cardholders Discover how some issuers are leveraging chip based technology to take their schemes to the next level.

INTRODUCTION 8
Who is the target reader? 8
Scope of the report 8
How to use this report 9
AN INTRODUCTION TO PAYMENT CARD LOYALTY 10
What is a loyalty scheme? 10
Issuers must compete on price or service provision 10
Price leaders offer price incentives 10
Reward based loyalty schemes are used by premium service providers 11
There are four key objectives of a loyalty scheme 12
The primary objective is to attract new cardholders 12
The second aim is to retain these cardholders 13
Multi-retailer schemes offer even greater acquisition potential 13
Loyalty schemes aim to make their product the "card of choice" 14
Points-based schemes also reward the most active 14
The final objective is to increase customer spending data 15
INNOVATIONS IN LOYALTY 16
Introduction 16
Rewards are being adapted to cardholders' preferences 16
Many issuers are offering increasingly exciting and innovative awards 16
Profile: The American Express Blue Sky card gives cardholders an unlimited choice of travel rewards 18
The program offers a favourable redemption rate 19
However, the value proposition is not as strong as some airline co-branded cards 19
The Blue Sky program is aimed towards the mass market 19
Some payment card loyalty schemes will exchange points to a different loyalty currency 20
Profile: The Royal Bank of Canada has an extensive loyalty program, with the option to transfer point to other loyalty programs 20
Redemption is online 21
The points are transferable to other loyalty programs 21
Rewards for charitable and environmentally conscious cardholders are becoming more common 22
Profile: Greencard offsets the cardholder's carbon emissions 22
Well designed programs allow card holders to earn extra points in a range of situations 23
Profile: CitiBank's "Thank You" loyalty program has a range of merchant partners and offers cardholders a range of innovative rewards 24
The program gives cardholders the opportunity to earn points by using different Citibank services 24
Additional points can be earned at a range of other merchants, greatly adding to cardholders' ability to earn points 25
Account management is from a dedicated website 25
Cardholders benefit from a large choice of rewards 26
Prepaid gift cards are a reward option 26
Citibank will create a reward for cardholders 26
The program promotes the Citibank brand in general 26
New methods in point redemption are being more introduced 27
The next step forward from quicker redemption via the internet is instant redemption 27
Some issuers are leveraging chip technology to allow instant redemption in their loyalty programs 28
Chips offer several advantages for loyalty over magnetic stripe 28
Chip technology facilitates instantaneous redemption at the point of interaction 30
Redemption at the POS is attractive to merchants too 30
Chip based programs allow issuers to develop a deeper relationship with cardholders 31
Profile: Garanti Bank offers cardholders a range of options on its chip-based Bonus Program 33
The chip allows for instant redemption 34
Garanti also have several non chip-based innovations 34
Profile: Mashreqbank's WOW! Card rewards repeat purchases as opposed to transactional loyalty 36
The chip allows Mashreqbank and its partners to reward transaction freqency as well as value. 37
Other data stored on the chip can help further the relationship between the program and the partner 38
The value offered to the retailer is considerable 39
While this functionality is compelling, chip based systems are not ideal for all issuers 40
Despite the benefits, chip based programs are very much in the minority 40
CONCLUSIONS AND KEY LEARNINGS 42
The secrets of a successful loyalty program 42
It should be remembered that reward programs are not the only way to create loyalty 43
Cardholders have different requirements 43
There is a trade off between price and reward program 44
Final thoughts on payment card loyalty 46
APPENDIX 47
Definitions 47
Affinity card 47
Balances outstanding 47
Co-branded card 47
Credit card 47
Charge card 47
Debit card 48
PoS terminal 48
Research methodology 48
Cards and Payments database 49
Future readings 50
Datamonitor's custom research capabilities 51
Cards & Payments Team contact details 53
List of Tables
Table 1: American Express' Blue Cash card offers a cash back rate dependent on the level of annual expenditure, 2007 14
Table 2: A selection of "Experience" type rewards on the Webmiles program, 2006 17
Table 3: Rates of tree replacement per type of expenditure on Greencard, 2006 23
Table 4: A representative sample of credit APRs and annual fees, UK, 2007 45
Table 5: Current relevant Datamonitor publications, 2007 50
Table 6: Future relevant Datamonitor publications, 2007 51
List of Figures
Figure 1: Three categories of reward based card loyalty schemes exist 12
Figure 2: The American Express Blue Sky Card 18
Figure 3: The Royal Bank of Canada has an extensive loyalty program 20
Figure 4: RBC and Esso points are exchangeable in both directions 21
Figure 5: The Greencard is attractive to those who care about the planet 22
Figure 6: Citibank's "Thank You" program has a wide range of partners 24
Figure 7: Chips can store data specific to individual merchants as well 29
Figure 8: Chips can store personal information which can be used by merchants 32
Figure 9: The Garanti Bonus Card - Turkey 33
Figure 10: Garanti gives its partners access to detailed customer information via a website 35
Figure 11: The Mashreqbank WOW! Card UAE/Qatar 36
Figure 12: Chips allow merchants to encourage repeat business 37
Figure 13: Chips can bring together a range of offers to make a compelling customer loyalty offering 39
Figure 14: Datamonitor's core consulting capabilities 52