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How banks can increase customer retention with appealing loyalty programs

Senior Business Analyst and Financial and Banking IT Consultant, ScienceSoft


Recently, CGI conducted a survey on emerging financial consumer trends, where they explored bank customers’ top needs. According to the research, number one in this list belongs to loyalty rewards such as credit card points, discounts for purchases and other bonuses. It turned out that 81% of respondents expect to receive some form of an incentive from their primary banks for completing typical banking activities. But are banks adequately responding to this need? Let’s see how they strive to meet customers’ demand in terms of loyalty and rewards programs.

Banking CRM and customer retention

Customer loyalty programs in focus

Most banks have already immersed themselves in work on loyalty programs in an attempt to increase customer retention and attract new customers. To increase the number of loyal customers, banks started experimenting with various methods and and banking software solutions.

For example, Citibank introduced the ThankYou program that allows earning points based on customers’ monthly activities within the bank’s network as well as its partners. Customers can later redeem them for various products, travel experiences, etc. Based on the same criteria, Bank of America offers free withdrawals from non-chain ATMs, no-fee checking accounts as well as free equity trades. Some financial institutions try to encourage customers to do more business with them by introducing discounts in case of purchasing additional financial products and services. For example, for the most active customers Wells Fargo offers lower loan rates on car and student loans, while at TD Bank customers can receive special rates on savings accounts as well as discounts on mortgages, home equity lines of credit and unsecured loans.

Traditional loyalty programs are losing relevance

Still, banking loyalty programs in general suffer from a common drawback. Unfortunately, the majority of banks design their loyalty programs around an average consumer. As noticed by Roland Bloesch from SAP Hybris, banking loyalty programs are becoming more prevalent and less exclusive. In a highly competitive banking environment, where customers can easily slip away to a rival with a more attractive proposal, a lack of attention to a bank’s loyalty program can cause customer churn. Having a loyalty program is only a precondition for making customer retention possible. That is why banks that deliver ordinary loyalty programs should not be surprised when they reap mediocre results. To gain more visible benefits, banks need to provide rewards that excel the conventional level of service. And some banks have already gained ground in that.

Focusing on customer needs and preferences

Wallet app for loyalty card management

According to Amdocs’s research, 61% of customers like the ability to manage their loyalty programs from a mobile wallet, but only 21% of financial providers offer this feature. Capital One is one of such forward-looking banks with its proprietary wallet app designed for loyalty card management and reward redemption.

Personalization to meet unique customer preferences

On January, 2017 S&T Bank launched its My Rewards program designed to offer personalized cash rewards tailored to the unique shopping preferences of customers who often use debit cards. The program includes customers’ favorite places to shop with offers ranging from in-store to online. A loyalty program that takes into account customers’ likes and tastes has more chances to entice customers for continual interaction, thus increasing their retention.

Smart ways to attract and retain the younger generation

One of the hotly debated topics these days is how to establish long-term relationships with millennials and engage them into using more financial products and services. These tasks are rather knotty since millennials are far more likely than any other demographic group to switch banks if the latter don’t meet their needs.

To reduce such a possibility, Zions Bank developed the Pays for A’s program to reward students for their diligence in studies and support education. The program allows earning $1 for every A on a student report card, which is deposited directly into a savings account at Zions Bank. Additionally, the bank offered all students to participate in a lottery and win extra $100 as well as a $1,000 scholarship.

With this program, Zions Bank can attract younger generation and start gathering data about them from the beginning to create more targeted banking products and services. At the same time, such rewards add to a greater brand association while fostering trust among both parents and students.

Banking CRM and customer retention: customer profile

Taking loyalty programs up a notch with the right technology

If banks wish to create compelling loyalty programs that outcome those of competitors and have higher chances to retain customers, they shouldn’t overlook technological tools that provide valuable insights on customers and introduce new approaches to customer retention. 

One of the essential steps towards top-notch loyalty programs is to make the best use of a banking CRM system. It helps banks manage their customer database from one single place, segment customers not only according to their income level or demographic criteria, but also according to their lifestyles and purchasing behavior. Combining CRM with advanced analytical tools can help banks to launch smart reward programs with personalization goals at the first place. With a full view of customers, a bank CRM will help to identify and target the most profitable ones as well as eliminate those programs that do not deliver significant value.

Another way to enhance loyalty programs is to ensure digitization of loyalty programs. According to Amdocs, 46% of customers would like to pool points with family and friends, but only 21% of banks currently provide this capability. Therefore, banks could consider providing customers with the ability to send and receive reward points using their mobile banking apps.

Banks can also increase customer retention through loyalty programs if they provide an omnichannel view on customers’ rewards. Customers will appreciate the possibility to view their loyalty points from any platform, be it mobile, tablet or desktop as well as set up automatic redemptions toward deposit accounts, credit lines or to purchase certain merchants’ gift cards.

Using gamification elements for loyalty programs can also increase their popularity among customers. For example, a friendly pop-up message that congratulates a customer on getting a bonus for keeping some desirable threshold balance for a month.

Understanding customers is the key

Although customers’ behavior may seem too complex and hard to understand, banks should keep an eye on the latest technologies that could ease the challenge and help them  create more targeted loyalty programs to move away from traditional, impersonal ones. While customers have become more thoughtful about money management, only top-notch loyalty programs can make tremendous strides to instill loyalty in customers and increase their retention within the bank.

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