Are Card-linked Offers the solution to a decreasing interchange?

31 August 2015

A pressuring context

The pressure from regulators on interchange fees, especially in Europe, forces retail banks with loyalty programmes to reconsider not only the funding of rewards, which was previously based on a share from the interchange revenues, but also the overall card portfolio value proposition to their cardholders.

Card Issuers face a few options related to the economic sustainability of their existing programmes such as:

  • Introducing (or increasing) their annual card fees
  • Cancelling their programmes
  • Reducing the value of the reward by changing redemption rates, earn rates and expiry dates
  • Shifting the cost of the programme to merchant-funded programmes.

For banks that rely on merchants to fund rewards, the key challenge is to demonstrate a clear incremental value to merchants in exchange for their funding, while retaining the control on the value proposition to cardholders.

Card-linked offers are merchant-funded offers but with an obligation for the customer to use their bank card in order to benefit from the offer. 

Card-linked offers versus offers in rewards catalogues

Card-linked offers should in fact be called card-linked promotions. This would allow distinguishing card-linked offers from offers found in reward catalogues.

  • Offers in reward catalogues require the member of the program to use their points or miles in order to enjoy them. They also rely on building a network of merchants available to sell their goods on catalogues in exchange for loyalty currency.
  • In opposition, card-linked offers are card-linked promotions enjoyed by customers without the need to redeem points or miles. The value of the offer is “zero” in terms of number of points or miles required. They rely on building a network of merchants available to finance promotions in exchange for more traffic (new or re-activated customers) at their physical or online stores.

Characteristics of Card-linked promotions

Card-linked promotions can be:

  • Monetary (absolute discount value 5 Euros discount or percentage discount value 5% discount, cash back) or non-monetary (buy one beer, get one free)
  • Segmented for example based on the type of card being used. Cards targeting higher segments can command promotions with higher value.
  • Targeted at new customers who have never visited a store or at dormant customers who visited a store and need to be reactivated. In retail, a customer who has not shown up in the last three months can almost be considered new.

Many specialized vendors provide various flavours of Card-linked offers solutions.

Part 2 focuses on the various capabilities found in Card-linked offers / card-linked promotions solutions