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Truth’s whitepaper: The true value of unspent loyalty points

The financial services industry, specifically the big four banks, have offered loyalty programmes for a number of years and in doing so have acquired important customer transactional data. Loyalty strategies, in the banking industry, were initially designed for rewards to be linked to spend on credit and debit cards. This was mainly to help position the banks in the market and be first in the customers’ wallet, from a spend point of view. The competitive nature of the banking world has led to banks starting to use loyalty programmes as a key differentiator in delivering a competitive advantage and in some cases even provided a life-line during these difficult times.

Firms have begun to realise that true value for the customer lies in high redemption rates, which in turn, also reduce the weight of loyalty on the balance sheet. This whitepaper explores Truth’s thinking around what the current monetary value of unspent loyalty points in South Africa’s retail banking industry may be.

Based on industry estimations and what some banks have openly declared, we conservatively estimate that the unspent of loyalty balance of consumers in the retail banking industry is at least R2 billion.

This figure takes into account the stated redemption of eBucks, Carlos Simos, Head of Marketing for eBucks, recently stated at the eCommerce Money Africa conference that to date members have earned up to R8bn worth of eBucks and that eBucks witness a 80% redemption rate (well above industry standards).

Absa Rewards is an equally interesting case study of retail banking loyalty programmes in South Africa due to their lack of points and choice to instead reward consumers with actual cash back in their accounts. We’ve spoken at length about the power of cash back rewards in our previous ­whitepaper.

When discussing South African banks’ points liabilities and brand loyalty it may seem out of place to mention an American coffee retailer. However, last year, it was announced that the coffee giant, Starbucks, had $1.3bn worth of cash loaded onto its loyalty card and app (which can be used to make mobile payments). At the same time, American Express, the credit card provider, had only $3.3bn worth of cash. This further indicates the huge financial implications and opportunities of unspent points within loyalty programmes.

If your loyalty points are sitting as a liability on your balance sheet, we strongly believe you should be driving increased redemption. Apart from lightening the weight on your balance sheet, higher redemption drives a greater brand experience, increased customer loyalty (creating a longer term asset) and greater customer data insight (triggered through increased transactional volumes) and therefore, the greatest opportunity to achieve customer centricity. We, categorically, encourage higher redemption rates for a successful customer loyalty programme.

To understand more about how unspent loyalty points can weigh on your balance sheet and to see just how large we view the opportunity for increased redemption rates in the South African retail banking industry, download the full whitepaper here. This whitepaper is in partnership with wiGroup International.