New generation of offers

There is a clear tendency among the younger generation to be against credit cards. They have seen from their parents what overuse of credit cards can lead to and at the same time they feel that credit cards are complex and lack transparency.

The rise of the BNPL is an obvious consequence of this, i.e. these companies provide a different means for the same purpose (buying a good on credit), but with a better user experience and more transparency (or at least the feeling of more transparency).

Due to this change, a potential difference rise on all loyalty and reward programs offered by most (credit) card schemes. These benefits represent a huge market, although these rewards are often more the perception of getting value than receiving actual value (because very few people actually consume these discounts/rewards).
The actors of the BNPL are already taking initiatives on this side, by launching their own loyalty programs (to differentiate from other BNPL players, now that new players are entering the BNPL market). The problem with this is that today most merchants only opt for 1 BNPL reader in their checkout process, so the choice of which BNPL to use is always on the merchant side and not the consumer side. This unlike credit cards, for which almost all common schemes (VISA, MasterCard, American Express, UnionPay…) are offered by almost all stores.
Obviously, when consumers will increasingly express a preference for specific BNPL players (for example due to their loyalty programs or other reasons, such as reduced interest rates in case of late payment or other value-added services), merchants will be obliged to offer several BNPL solutions in their payment process (giving the customer the choice).

However, these loyalty programs can also be expanded outside the credit space and can be a valuable instrument for increasing customers’ purchasing power and attracting new customers and retaining existing customers.
As a result, many banks are also launching all kinds of rewards or loyalty programs, in the form of coupons, loyalty savings, games, prizes, cash-back…​ (e.g. ING Deals, KBC Deals or Argenta Cake in Belgium), with many new innovations in the world of Financial Services in this area, such as:

  • Loyalty programs related to debit cards

  • The integration of loyalty cards in banking applications (cfr. KBC or Payconiq in Belgium)

  • Automatic assignment cash-back or loyalty points based on automatic identification of applicable transactions (possibly using PSD2/Open Banking services).

  • Suggestions for cheaper offers for recurring costs / subscriptions such as electricity, insurance…​

  • Group Acquisitions organized by banks

  • …​

Unfortunately, the use of these innovations remains limited and the user experience is far from excellent, due to all sorts of maturity issues, e.g.

  • The difficulty of being aware that an interesting offer exists, that is, most offers platforms only display a list of their offers, which makes it very difficult to be aware of an offer that might be of interest to the user. Techniques (often based on AI models) like

    • Propose relevant offers for the user, for example via push messages based on your purchase history and/or your current geographical location or sections such as “Deals for People Like You”

    • Sort offers based on relevance to the user, i.e. based on the user’s purchase history, brand recognition and/or current distance between the store and the user

    • Clearly highlighting new offers (since the user’s last visit to the platform)

    • Good user filtering choice

    • Auto hide offers that are not relevant to the user, for example local offers in other cities

    • Highlight offers that are (most) relevant at specific timese.g. based on the weather or based on the user’s previous actions in the banking app or purchases made just before (i.e. identified from payment history or via PSD2/Open banking)

    • Launch online purchases (via redirection) directly from the banking application (cfr. Trooper) which makes it possible to display the applicable offers

    • Offer the possibility to a user to configure transaction visualization settings for himself, i.e. allowing the user to configure the type of offers he is interested in, for example which sector/category, which region (can be multiple, for example the region around his home and the region around his place of work), physical and/or online shops, national brands and/or local shops, coupon offers versus cash back versus gift card…​

  • Even if the user has identified a relevant offer for him, the user must still be assisted so as not to forget this offerfor example being notified when the user is near a store where a relevant offer can be redeemed or being notified when an offer is about to expire.

  • A good compromise must be between simplicity for the end user and visibility for the merchant, i.e. a user would like any applicable offer to be consumed automatically without any user intervention, but for the merchant this may yield very little added value because in such a setup most purchases related to these offers would also have taken place without the agreement. This means that the merchant hardly earns new business from the agreement, but still has to pay not only the discount, but also the commission to the bank. Obviously, this is far from ideal for the trader, who obviously wants maximum advertising value out of his consent.

  • Merchants prefer to offer highly targeted offers, such as offering the offer only when a certain product is purchased or only offering it to specific customers (for example, customers who are not yet purchasing from the store or customers who were previously customers of the store, but have recently decided to switch to a competitor). Unfortunately for banks, these types of detailed agreements can be technically difficult and often even impossible (for example, an agreement that only applies to a specific product is only possible when the bank has access to the ticket information of purchase – provided by the merchant or the customer) or legally difficult (for example, the use of financial information for commercial purposes can be an issue from a GDPR point of view). Hopefully, Open Data initiatives for retailers and initiatives to pass ticket information in a payment request (like SEPA Request-to-Pay) could be a game-changer in this regard.

  • The difficulties to support more complex transactionsAs

    • Deals that consolidate multiple purchases (in the same store or in different stores), for example a parking ticket which is reimbursed for purchases made in the neighborhood, a reduction for X purchases made over a specific period in a store…​

    • A cash back when you spend more than X EUR on a specific dayin a Shopping Center (all shops combined)

    • Offers only available for specific weather or timefor example offers that can also be used during lunch hours or on weekends, an offer for umbrellas pushed automatically on a rainy day…​

    • Offers Pushed by Merchants Instantlyfor example restaurants that still have a last-minute free table, last-minute hotel or travel reservations…​

  • Many customers use different banks and different payment methods for consumption. The Deals platform should, however, automatically identify and aggregate all financial transactions applicable for a transaction, i.e. include joint accounts and payments made via credit cards, BNPL players, Paypal…​, payments made by accounts in other banks (retrieved via Open Banking /PSD2), payments made with social security vouchers (meal type or gift vouchers)…​

  • The cost for a bank to find suitable offers (i.e. offers that are a little exclusive, attractive to customers and in line with the bank’s ethical and sustainable standards) can be extremely high. At the same time, merchants waste a lot of time discussing, defining and signing the same agreement with several providers (banks, telecom operators, etc.). Clearly lead generators and aggregators (as Google and Facebook have an almost monopolistic position for digital marketing) could bring an interesting offer in this space. Additionally, there is a need for more digitalization and standardization towards merchants, so that small stores can easily post offers (coupons, cashback, gift cards…) to multiple vendors in a completely digital way (all like you can buy an all-digital Google, Facebook, or LinkedIn ad today).

With decline in purchasing power due to soaring inflation rates, any way to help customers increase their purchasing power can be a serious problem competitive advantage. It will be interesting to see how banks can solve the above problems, so that they can find the best Win-win-win balance (i.e. Win for the customer, Win for the bank and Win for the merchant) in this deal space.

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