The Future of Payment Card Loyalty

Introduction

The Future of Payment Card Loyalty analyses the history, current situation and future of the global payment card loyalty market. Utilising a mixture of propietary quanititative data and qualitative research, this report looks at how payment card loyalty programs work, their impact on card issuance, usage and revenue, and how key players are adapting to a dynamic and competitive environment.

Scope

*Analyses the current structure of payment card loyalty programs, their objectives, key players, historic development, and current threats.

*Includes detailed analyses of the material impact of loyalty programs on card issuance, transaction volumes and values, revolve rates and revenue.

*This report analyses four key strategies for issuers to effectively deal with the long term threats facing the sector, with international case studies.

*Primary interviews with key players provide perspective from issuer, payment scheme, retailer, and third party provider points of view.

Highlights

Payment card loyalty programs are an established feature of all markets globally. In each of these regions they continue to exist as either cash back, points based, or club model. They are an established and expected feature of the market and will not disappear anytime soon.

Payment card loyalty programs on average have a positive effect on card usage and revenues. This includes an average share of 55% of cards in issue, 60% of transaction volumes, 71% of transaction values, and 61% of balances outstanding.

Issuers and schemes have little choice but to adapt and evolve payment card loyalty programs due to economic and other pressures. These changes include a focus on specific consumer segments, greater focus on personalization, leveraging retail brands, and leveraging new technology.

Reasons to Purchase

*Understand what card loyalty programmes can do for your business by understanding what they are, and how they have developed.

*Plan effectively with concrete data providing solid understanding of what loyalty programs are capable of achieving.

*Find out how payment card loyalty programs can benefit your company with real world examples of key player strategies


Report Highlights
Payment card loyalty programs are an established feature of all markets globally. In each of these regions they continue to exist as either cash back, points based, or club model. They are an established and expected feature of the market and will not disappear anytime soon.

Payment card loyalty programs on average have a positive effect on card usage and revenues. This includes an average share of 55% of cards in issue, 60% of transaction volumes, 71% of transaction values, and 61% of balances outstanding.

Issuers and schemes have little choice but to adapt and evolve payment card loyalty programs due to economic and other pressures. These changes include a focus on specific consumer segments, greater focus on personalization, leveraging retail brands, and leveraging new technology.
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OvervieW 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Card loyalty programs have four distinct forms 2
Card loyalty programs increase acquisition, retention and usage, and collect consumer data 2
Card loyalty schemes exist in only a select number of forms 2
Issuers, merchants and third party providers are the key stakeholders in loyalty programs 3
Card loyalty programs are constantly evolving and adapting to their environment 4
The traditional loyalty model is broken 5
Pressures on revenues put the economics of loyalty programs under threat 5
Well implemented card loyalty programs produce results 5
Rewards and benefits are found in every country 6
Consumers with rewards and benefits account for 60% of all transactions by volume 7
Cards with rewards also have higher transaction values 8
Cards with rewards tend to hold lower revolve rate 9
Cards with loyalty rewards typically hold higher balances 10
The breakdown of potential revenue by type of reward is inconsistent across regions 11
Payment card loyalty programs have no choice but to adapt to survive 13
Targeting a specific market is a long proven way to extend cardholder engagement 13
Personalization provides a mechanism to offer greater engagement with improved efficiency 13
Leveraging retail brands can allow issuers to tap into existing loyalty 14
Leveraging new technology allows issuers to provide new means of loyalty 14
Table of Contents 16
Table of figures 17
Table of tables 18
Card Loyalty Programs Have Four Distinct Forms 19
Card loyalty programs increase acquisition, retention and usage, and collect consumer data 19
Loyalty schemes act as catalysts to increase card acquisition 19
Loyalty schemes give consumers a reason to retain their cards 19
Loyalty schemes are frequently aimed at primarily at incentivizing card usage 20
Loyalty schemes provide a mechanism to collect complex data on each cardholder 21
Card loyalty schemes exist in only a select number of forms 22
Loyalty programs are based around cashback, points or club models 22
Cashback 23
Points based loyalty schemes 23
Club models 24
Issuers, merchants and third party providers are the key stakeholders in loyalty programs 24
Retail banks and mono-line card issuers form the basis of all payment card loyalty schemes 25
Retailers and merchants benefit from increased sales and consumer data 26
Third Party loyalty program providers manage schemes on behalf of others 26
Card loyalty programs are constantly evolving and adapting to their environment 26
Stage one: non-credit card loyalty schemes 27
Non-credit card loyalty schemes are common in many sectors at an early stage 28
Stage two: loyalty as a means of customer acquisition 28
Stage three: loyalty penetration declines as some issuers begin to withdraw their schemes 28
Stage four: move the program on or focus on price 29
Stage five: personalization and market stability 30
Personalization and targeting becomes critical in reaching skeptical consumers 31
The traditional loyalty model is broken 31
Pressures on revenues put the economics of loyalty programs under threat 31
Credit card issuers are facing a growing threat from the emergence of loyalty programs for debit cards 32
Market dynamics can cause loyalty programs to recede in certain markets 33
Well implemented card loyalty programs produce results 36
Rewards and benefits are found in every country 36
Consumers with rewards and benefits account for 60% of all transactions by volume 38
Cards with rewards also have higher transaction values 41
Cards with rewards tend to hold lower revolve rate 44
Cards with loyalty rewards typically hold higher balances 46
The breakdown of revenue by benefit type is unique to each region 49
Payment card loyalty programs have no choice but to adapt to survive 54
Issuers must re-assess their goals and objectives to determine the best way to achieve them 54
Targeting a specific market is a proven way to extend cardholder engagement 55
American Express Zync is targeting a 20 something audience 55
Personalization offers greater engagement with greater efficiency 57
Carrefour has a launched a discount program that allows consumers to make decisions 57
Leveraging retail brands can allow issuers to tap into existing loyalty 58
Tesco's success in the credit card sphere is due to its wider brand loyalty 59
Leveraging new technology allows issuers to provide new means of loyalty 60
Barclaycard's freedom program offers PoS redemption through EMV technology 61
APPENDIX 63
Supplementary data 63
Any benefit compared to no benefit summary 63
UK Cards with Loyalty features, 2005-2009 65
Number of cards in issue 66
Transaction Volumes 69
Value of transactions 72
Balances Outstanding 76
Revolve Rates 80
Transactions per card 82
Revenues 86
Definitions 88
Affinity card 88
Average transaction value 88
Balances outstanding 88
Co-branded card 88
Credit card 88
Charge card 88
Debit card 88
Deferred debit card (pay later) 88
EMV 89
Frequency of use 89
Interchange 89
PoS terminal 89
Methodology 89
Primary research 89
Secondary research 89
Further reading 89
Ask the analyst 90
Datamonitor consulting 90
Disclaimer 90
List of Tables
Table 1: Summary figures for any benefits compared to no benefits by country 64
Table 2: Number of UK card products with Loyalty Features, 2005-2009 65
Table 3: Share of UK card Products with Loyalty Features, 2005-2009 (%) 65
Table 4: Number of cards in issue with any benefits by country, (000s and %) 66
Table 5: Number of cards in issue by type of reward benefit (000s) 67
Table 6: Number of cards in issue by type of reward benefit (%) 68
Table 7: Volume of transactions for cards with any benefits by country, (000s and %) 69
Table 8: Volume of transactions by type of reward (000s) 70
Table 9: Volume of transactions by type of reward (%) 71
Table 10: Transaction values for cards with any benefit by country, (000s and %) 72
Table 11: Transaction values by type of reward benefit (€000s) 73
Table 12: Transaction values by type of reward benefit (€000s) 74
Table 13: Transaction values by type of reward benefit (%) 75
Table 14: Balances outstanding for cards with any benefit by country, (000s and %) 76
Table 15: Balances outstanding for cards with any benefit by country, (000s and %) 77
Table 16: Balances outstanding by type of reward (€000s) 78
Table 17: Balances outstanding by type of reward (€000s) 79
Table 18: Balances outstanding by type of reward (%) 80
Table 19: Revolve rates for cards with any benefit and no benefit (%) 80
Table 20: Country revolve rates by benefit type (%) 81
Table 21: Transaction volumes per card by reward type (tx/per card per year) 82
Table 22: Transaction volumes per card by reward type (tx/per card per year) 83
Table 23: Transaction values per card per (€/per year) 84
Table 24: Balances per card (€/per year) 85
Table 25: Revenue by benefit per card, total revenue, and comparison to no benefits (1 of 2) 86
Table 26: Revenue by benefit per card, total revenue, and comparison to no benefits (2 of 2) 87
List of Figures
Figure 1: The relationship between players in loyalty schemes can be complex and interwoven 3
Figure 2: Each market is currently in a particular phase of loyalty market development 4
Figure 3: Some form of benefit is found on anywhere between 36.4% and 83.5% of credit cards 7
Figure 4: Cards with rewards typically have a higher number of transactions than cards with no benefits 8
Figure 5: Cardholders with benefits spend more than consumers without benefits 9
Figure 6: Cards with no benefits on average hold a higher revolve rate in most markets 10
Figure 7: Cards with benefits account for an average 61% of balances outstanding 11
Figure 8: The US market has the highest revenue from rewards and benefits 12
Figure 9: American Express UK offers consumers improved cashback rates with higher transaction levels 21
Figure 10: Loyalty schemes have three primary forms, each with their own type of reward 23
Figure 11: The relationship between players in loyalty schemes can be complex and interwoven 25
Figure 12: Each market is currently in a particular phase of loyalty market development 27
Figure 13: State Bank Group offers debit card holders reward points on every purchase 32
Figure 14: The total number of card products with loyalty features has declined in the UK (2005-09) 33
Figure 15: As a proportion of all card products, rewards and loyalty schemes have become more common 34
Figure 16: Some form of benefit is found on over half of all credit cards globally 37
Figure 17: The availability of specific reward type remains variable by country 38
Figure 18: Cards with rewards typically have a higher number of transactions than cards with no benefits 39
Figure 19: The share of transaction numbers by type of reward varies by region 40
Figure 20: Rewards and loyalty show a material increase in transactions per card 41
Figure 21: Cards with loyalty benefits dominate transaction values in all markets 42
Figure 22: Reward benefit transaction values by reward type are mixed between regions 43
Figure 23: Cashback in the US is the biggest single loyalty segment globally 44
Figure 24: Cards with no benefits on average hold a higher revolve rate in most markets 45
Figure 25: On a per reward basis, cashback cards frequently have the highest revolve rate 46
Figure 26: Cashback in the US is the largest market globally by balances outstanding 47
Figure 27: Cards with benefits account for an average 61% of balances outstanding 48
Figure 28: The level of balances outstanding on reward cards remains lower than their share of transaction values in many markets 49
Figure 29: The US market has the highest revenue from rewards and benefits 50
Figure 30: The typical revenue per card type is strongly varied by region 51
Figure 31: The difference in revenue caused by loyalty benefits can be positive and negative 52
Figure 32: Reward cards tend to account for a higher share of balances than cashback 53
Figure 33: Zync offers a social media forum for cardholders to share their thoughts on the card 56
Figure 34: Carrefour is marketing its program as offering control directly to consumers 58
Figure 35: Alongside Clubcard points, Tesco offers competitive rates on purchases and balance transfers 60
Figure 36: Barclaycard's Freedom program is being marketed as offering strong control to consumers 62

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