Thoughts from American Banker Retail Banking Conference 2015

Thoughts from American Banker Retail Banking Conference 2015
This last week the American Banker Retail Banking Conference 2015 was going on in Austin, TX. As expected, it was a great way to read the temperature of the banking industry. The conference was well attended, with broad representation from all institution sizes and markets. There were a couple of overarching themes throughout the event. Competitive pressures on smaller institutions were top of many bankers´ minds. The conference was full of community bankers discussing evolving business models and the pressures its placing on their ability to gather deposits. Customer centricity is forcing a convergence of traditionally segregated value propositions. Large banks are now trying to compete on serving the customer and they´re positioning themselves to look and feel like a community experience. New entrants and delivery models are also opening up the competitive landscape. Consumers are no longer limited by geography when choosing a bank, and they have a growing number of alternative financial options from which to choose. Smaller institutions are finding it hard to overcome some of the barriers of resources and marketing that arise as the competitive landscape broadens. Many presenters discussed developing non-traditional revenue streams. With interest rates low and new regulations following the financial crisis, banks are running incredibly thin margins, and traditional revenue sources are no longer viable. Presentations focused on targeted marketing for “moneyhawks”, new P2P models (e.g. P2P lending), and new payment schemes. A few thoughts on some of the talking points:
  • Breaking down omnichannel applications for financial services: Omnichannel within banking was a popular talking point between attendees and among presenters, and it´s obvious there´s still more than enough ambiguity around its application in the context of banking. One of the presentations used non-FI examples to look at how banks can approach integrating omnichannel into customer interactions. Home Depot was an interesting case study. The retailer combines the in-store and app experience to enhance the customer buying process. Customers can browse the app and make a list of the materials they need. The app shows only what´s in stock at the nearest physical location, and each item is given a corresponding aisle number for easy location on arrival. While in the store, customers can scan QR codes on each product to bring up specific measurements and statistics. This is the essence of an omnichannel experience. It´s not about doing everything from every channel—it´s about optimizing the customer experience across the variety of methods used to interact with the retailer (or bank).
  • Community banks differentiating from large institutions: This was a common thread running throughout the presentations. How do community banks grow deposits in a climate of shrinking deposit share? Presenters proposed some solutions. One spoke of the need to market correctly. A recent study found that despite problems with megabank perception, 73% of those asked said a recognizable brand was important in choosing a financial institution. A regional bank poll of millennials found that not one could name a community institution in their area. These institutions find it hard to inform consumers about the value they provide, and often lacking the resources and experience to do so. A few small institutions spoke about shifting towards serving small businesses. Despite only having 20% of deposits, community banks are responsible for 60% of small business loans. Focusing on small businesses could be a way for small institutions to remain viable, without having to drastically alter their businesses.
  • eCommerce and Merchant Funded Rewards (MFR) through mobile banking to help consumers save:  During one of the sessions, a banker made a good point: consumers don´t need help spending, they need help saving.  The comment reflected a number of discussions about the role financial institutions can play in helping consumers save money, but was echoed across a handful of presentations on digital commerce. US Bank discussed Peri, its eCommerce app developed in cooperation with Monitise, while other presenters spoke about card-linked and MFR propositions.  These initiatives are definitely innovative, but is conflating the ideas of saving and driving commerce shaping the conversation around a fundamentally misaligned approach?  First, will a bank´s eCommerce app be able to compete with the likes of Amazon and Google?  Banks often do not have the customers, data, or pricing competitiveness to match big online retailers, and they seldom win on brand favourability. Second, even when these initiatives are successful, do they really help people save?  For many, the data isn´t targeted enough for banks to offer deals on purchases a consumer was going to make anyway.  For example, based on one bank´s demo, a customer would go to make a purchase at a retailer and the bank app would push out a geo-located card-linked offer for a nearby restaurant. This requires additional spending.  Without the right data, these programs are mostly playing off impulse purchasing, not saving.
Do these themes resonate with your experience? Feel free to leave comments about how your institution is tackling these challenges.

New Celent Report: A Case Study of BankAmeriDeals Program

New Celent Report: A Case Study of BankAmeriDeals Program
I wanted to share the exciting news that we have just published a new report called “Using Data to Create Value for All Customers: A Case Study of Bank of America’s BankAmeriDeals Program.” As many of you know, I have been following the merchant-funded rewards (MFR) space for some time now. The scale of BankAmeriDeals, Bank of America’s online and mobile cash back deals program, makes it one of the flagship implementations of MFR initiatives. I was very keen to understand what it takes to implement such a program at a large bank, what can be achieved, and what lessons can be learned. The objective of this case study was to explore these issues, specifically:
  • The genesis of the program: rationale, guiding principles, and vendor selection
  • Value proposition
  • Technical solution
  • Project timeline and program rollout
  • Project team and governance
  • Results and operational metrics
  • Running the program within “business as usual”
  • Plans for the future
If you are familiar with MFR programs, you might be wondering why the title talks about “all customers.” It’s true, many MFR programs focus mainly on the bank’s cardholders and often even on a specific portfolio of cards, such as debit. However, Bank of America from the outset wanted to build something that would be beneficial to all of its customers, both consumers and merchants. Furthermore, the program is available for nearly all cards and to all customers with access to online or mobile banking. These are just a couple of insights from this case study and there are plenty more. I would like to take the opportunity to thank Bank of America for making this case study possible; its executives were generous with their time and insights. We would also like to acknowledge and thank Cardlytics for its contribution. Celent’s existing clients can access the report here. If you are interested but are not yet a client, please contact info@celent.com.  

Barclaycard Launches Bespoke Offers in the UK

Barclaycard Launches Bespoke Offers in the UK
Yesterday Barclaycard launched a new service in the UK called Bespoke Offers. The website will feature a range of deals from some of the UK’s largest retailers, including Tesco, British Airways, Virgin and Starbucks. Participating merchants will be able to target offers to consumers, who will be able to select the offers they like via the website or mobile app. The offers will include merchant discounts as well as deals which the customers have to purchase in advance, similar to daily deals offered by the likes of Groupon. My immediate thought was that merchant-funded rewards (MFR) have finally landed in the UK. However, after the first inspection, it seems that it’s MFR with a twist. Most MFR programmes in the US are focused on issuers and their cardholders. Barclaycard’s offers are available to any UK cardholder; it would appear that Barclaycard is building more on its acquiring rather than issuing assets – it is one of the largest UK acquirers and sees a lot of credit and debit card transactions through its merchant relationships. The other difference is that the offers don’t appear to be linked to the card for seamless redemption. Instead, they are delivered as vouchers which the customers have to present to the merchants to qualify for a discount. Finally, at least at the start, there are offers which are generic and available to all customers – all I had to do to get a 5p off per litre of fuel at Shell was to enter my email address and the PDF voucher arrived promptly for me to print it out and present to the cashier. The website did not know anything about me and the offer was not targetted to me at all. Apparently, if and when the customers register and provide more details about themselves, the website then uses that information to target; until then, the customers can get access to generic offers. Another interesting thing was that Barclaycard appeared to be introducing a new digital wallet called bPay. According to Bespoke Offer website, bPay “can be used with Bespoke and other retailers, where you see the bPay button.” Customers “can add new and additional cards to bPay anytime they are at the checkout.” The strange thing is that information about it was hidden deep inside the FAQ section of Bespoke Offers, so I wonder if this is something that Barclaycard will be officially launching later? There is no shortage of voucher schemes in the UK. Weve, the JV of leading UK MNOs is just one the latest examples of companies ramping up its mobile voucher solution. After pulling the plug of Freedom, Barclaycard was always going to come back strongly with the loyalty proposition. Only time will tell if the new Bespoke Offers proposition will stand out in the increasingly busy space.

New Reports on Merchant-Funded Rewards Are Out

New Reports on Merchant-Funded Rewards Are Out
A few months ago I blogged about merchant rewards and cards and invited relevant companies to participate in my forthcoming research. I am pleased to announce today that the results of that research were published last week. The first report, “Can Card Issuers Turn Loyalty Program Costs Into Revenues?” builds the case for merchant-funded rewards. It explains the evolution of the ‘merchant-funded rewards’ (MFR) term, reviews the current state of the market and considers its future development. As I acknowledged in the note accompanying the report, it takes time and effort to build a substantial network of merchants, FIs, and consumers, which is why the MFR programs have yet to truly move the needle in terms of overall results. However, in our view, the benefits of MFR programs are obvious, and the market is brimming with promise, is clearly on an upward trajectory in terms of FI and merchant adoption, and with some impressive individual success stories already. The second report “Selecting a Merchant-Funded Rewards Platform” takes an in-depth look at the leading MFR platforms: Affinity Solutions, Cardlytics, Cartera Commerce, edo Interactive, FreeMonee Network, Linkable Networks and Truaxis. In addition to containing detailed profiles of each company, the report analyses how the platforms compete and differentiate from each other. It’s only on the surface that they all look very similar; in fact, important differences exist. Understanding these differences helps financial institutions when deciding on potential partners. Merchant-funded rewards is clearly a hot topic at the moment. In addition to the published reports, I will also be moderating a couple of related panels in the near future – one at the American Banker webinar and another at the ATM, Debit and Prepaid Forum. If you haven’t done so yet, please consider registering for both of these events. Also, if you are a Celent client and would like to discuss these reports in more detail, don’t hesitate to reach out to me directly or via your account manager. I will continue to keep an eye on this exciting space and would be very interested in your efforts and perspectives.

The Battle For Transaction Rewards

The Battle For Transaction Rewards
Last week Zil Bareisis posted a great blog entry regarding American Express’ Tweet Your Way to Savings Program. It’s a mighty interesting concept and provides quick cash back rewards to cardholders. It raises a few relevant questions for me:
  1. Are social rewards a passing fad? While this Amex/Twitter hookup received a fair bit of attention is it going to stick? It reminds me of a SPG promo announced about a year ago that offered 250 Starwood points for every Foursquare checkin during a hotel stay. Being a regular traveller, I tried this a few times and received some bonus points. I’ve since totally forgotten about it, and I am a points junkie! I don’t have any hard stats but I’d wager that usage of this promo has dropped off. Will the Amex/Twitter offers follow the same fate? There are hard dollars and a larger number of merchants involved here (see list of Twitter offers here) so it’s a tad different.
  2. Do social rewards increase brand loyalty? Everyone likes a good deal these days but how much loyalty is this actually creating? Would you, for example, switch to McDonald’s from Burger King in order to cash in? Would this create additional loyalty towards Burger King?
  3. Will social rewards drive folks to regularly transact using Amex cards (over another payments vehicle)? There is a battle brewing between merchant rewards online banking solutions and American Express. As Zil noted, there are quite a number of vendors in this space. Cardlytics in particular has been successful at penetrating the large bank market and has also formed partnerships to deploy via Intuit and Fiserv. The Amex/Twitter program is a direct attack against online banking merchant rewards. It’s but a blow in what is going to be a drawn out battle to own the transaction.

There are lots of questions for the moment and not a lot of answers given the immaturity of this space. I welcome your thoughts and comments.

Merchant Rewards and Cards

Merchant Rewards and Cards
Last week American Express announced that it would be offering its cardholders the ability to sync their plastic cards to Twitter. When the customers tweet using special offer hashtags, couponless savings are loaded directly to their cards. This seems to be the latest in a number of developments by established players as well as new companies, all aimed at making it easier for merchants to offer relevant discounts or gifts to consumers by linking them directly to their existing payment instruments, most often cards. This clearly has benefits to the merchants who are able to better target their marketing spend. It also benefits the financial institutions which are able to offer their cardholders tangible rewards without significant expenditure on their part. In fact, sometimes, they even see the direct revenue benefit from participating in such arrangements. And the evidence to-date seems to indicate that consumers like it as well. Is this the way forward for card rewards? Will these merchant-funded rewards replace cash back, “miles” and other more traditional card loyalty schemes? How should banks think about these programmes? Which partners should they be working with? There are a number of companies in this space, from established players such as FIS and First Data, to relative newcomers, such as Cardlytics, Cartera, FreeMonee, BillShrink, Offermatic, Linkable Networks (formerly Clovr) and others. However, even though they appear to be offering similar services, they often have subtle, but important differences in their value proposition to at least one of the key parties (merchant, bank, and consumer.) And we suspect that they differ in their customer reach as well as technical or servicing capabilities. Merchant-funded rewards will be on the research agenda for Celent in the next few months. We intend to conduct a detailed review of the key players in this space. If your company is offering relevant services and would like to be reviewed in our research report, please don’t hesitate to contact me at zbareisis@celent.com.