How will open banking and the personal data economy change loyalty forever? – 5 predictions for the future.
Loyalty programmes have been around for generations and the concept of giving rewards for spend have hardly changed over this time. Most programmes have provided valuable insight by identifying and rewarding the small proportion of customers responsible for the largest proportion of sales. They have not, however, recognised that these high value customers are also likely to be high spenders with competitors too.
The new General Data Protection Regulation (GDPR) and Payment Service Directive (PDS2) have the potential to change all of this. These EU regulations will enable customers to give permission to brands of their choice to see, among other things, their banking transaction history. This could truly transform the programmes we see today, changing them from unmeasurable sales incentives to mechanics that truly reward loyalty.
So how will this revolution be reflected in the programmes we all take part in?
- Performance measurement – Until now the cost of loyalty programmes has been justified by an assumption that a small proportion of customers will change their behaviour enough to justify the cost of rewarding all. The problem with this assumption has been that measuring the impact of a loyalty programme on competitor spend has not been possible as competing brands will rarely, if ever, agree to share personal spend data. The growth of open banking initiatives, the introduction of open banking APIs under PDS2 and the growth of data portability under the GDPR means that the choice of how data is shared, will pass from the data controllers to customers. This means that companies will soon be able to directly measure the impact of marketing activities on competitor spend, if and when customers choose to share this information. This change will allow a far better understanding of the effectiveness of all marketing activity, including loyalty, on changing customer preference and will lead to far more scrutiny on marketing budgets and the cost of rewards.
- New propositions – The open availability of transaction data (with permission), will lead to an explosion in new propositions in the market. Traditional players and their boards, will need to adapt quickly if they are to maximise the opportunities and minimise the threats, with compelling strategies in place.
- Share of wallet offers – Until now, deals which directly encourage share of spend have been largely restricted to centrally negotiated agreements such as corporate travel deals or fuel cards. The GDPR and PDS2 will allow promotions like “fill up 3 times out of 5 and get X” where offers encouraging spend shift from one brand to another will be possible. This change could add a new dynamic to competition and have the potential to drive greater measurable impact at a far lower cost.
- Targeted offers – For many, the ambition of a “single customer view” only extends to activity at a single brand. Having the potential to access personal spend data across a category will extend customer understanding far beyond a single brand or product and enable far better targeting of offers and propositions.
- Growth of card linked offers – Allowing brands to see where customers spend, will inevitably lead to a growth in co-operation between brands that share a similar customer base. For example, if a brand learns that its’ customers spend a disproportionate amount at Evan Cycles then both parties may want to introduce a reward mechanic that encourages this. Card linked offers, where customer spend is tracked and rewarded using any registered credit or debit card would seem an obvious mechanic for this and could see significant growth as a result.
If you would like to discuss any of the ideas that are raised here or understand how your brand can better prepare for life after GDPR, please contact me via LinkedIn.
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