Competition, technology, and shifting consumer expectations are changing the face of the financial industry. Large banks and financial institutions are seeing parts of their diverse customer bases lured away by new, uniquely-positioned fintechs that offer consumers tempting perks, generous cashback or other reward offers, and alternate ways to pay.
In essence, a new front in the battle for market share is in payment tender type - in effect, we’re witnessing “the tender wars.”
If you’re worn down by the tumultuous tender wars, you’re not alone. That said, a revamped strategy to loyalty and rewards can help you gain back your competitiveness.
Why is the Industry Changing?
Customers have rising expectations when it comes to cashback and rewards. What used to be a differentiating feature — rewards — is now seen as table stakes by consumers. They simply expect rewards. As a result, financial service providers are forced to offer ever-better rewards programs and other benefits to retain their customers.
The reality in many situations is nimble, newer challenger banks are siphoning off key niches from the big banks and financial institutions by offering distinct consumer verticals new and creative services that directly speak to their demographics or psychographics, as well as by reducing fees and delivering other money-saving features to the customer.
Take for example Greenlight, which offers a suite of financial services including debit cards, educational resources, investing, cashback and more. Sounds fairly standard, right? The differentiator is, Greenlight targets families with children, with a mission to advance financial literacy in kids.
With new fintechs constantly popping up offering unique value propositions and rewards to customers in all different corners of the market, we can expect virtually endless new perks and offerings that threaten to take away business from established financial institutions.
Fintech investments reached over $91 billion in 2021, close to doubling the total from 2020, supporting thousands of fintechs and challenger banks which are fragmenting the market, competing for consumers, making retention more difficult and increasing CAC (customer acquisition cost).
New Tender Choices
Consumers today have a wide range of choices in how they pay, from what bank accounts, and how often. In the past, financial industries could reasonably expect that consumers would pay for goods and services up-front, in-full, with a debit or credit card.
Today, though, options like PayPal make it even easier for consumers to make online purchases. Using PayPal at checkout is essentially frictionless and often smoother than using a credit card.
On top of a cardless checkout, new "buy now pay later" tender options add a layer of flexibility to online shopping. These give the power to consumers to shop and to make payments for purchases in the ways that work best for them. Now, almost everywhere you shop, you see checkout options including cardless payments, buy-now-pay-later, and other burgeoning trends like paying in cryptocurrency.
In order to stay competitive, established institutions need to beat the start-ups at their own game. Here are five steps to making that happen.
Step One: Develop a Wallet Strategy
The decentralization in payment options makes it difficult for the traditionally large players to maintain market share. Nimble fintechs will continue to grab hold of niches in the market as financial technology continues to flourish.
Every bank on the planet right now is having a discussion about, “what’s our wallet strategy?”
PayPal and the host of other consumer payment platforms aren't going away. The convenience they bring to leveraging payment options leads to a battle for payment primacy at checkout.
To rival the convenience of options like PayPal, banks need better ways to capture their customers' attention earlier in the checkout process instead of relying on them to remember a particular card, then enter that card information at online checkout. For one, banks need to create a digital wallet that can centralize the consumers’ multiple payment types in one location and allow them to seamlessly pick a tender type at checkout.
A wallet strategy also creates an avenue for institutions to “merchandise” their tender type to the consumer, similar to how PayPal has their logo prominently featured on millions of e-commerce sites’ checkout pages. Banks can now deliver offers attached to their payment tender, such as cashback rewards, to raise customer’s awareness of the tender and encourage its use. For example, they can email an offer such as, “get a limited-time double cashback reward for online purchases made with [your company’s] tender type in the next 2 days.”
Offering customers better rewards, as well as the freedom to attach credit cards, bank accounts, investment accounts, and more, helps centralize the value in the wallet and builds consumer trust and connection.
Step Two: Use Technology to Provide End-User Flexibility
As a financial service provider, you’ll want to make it as easy as possible for your customers to make payments. That means providing maximum flexibility at the end-point. It’s not enough just to simply offer your customers checking accounts and credit cards. Instead, you’ll have to offer a range of other options, particularly pertaining to payment for online shopping.
That flexibility may mean providing financing options. It may also mean offering cash back or other rewards to incentivize an online purchase with your tender.
Step Three: Optimize Merchant Reach
As you move towards the worthy goal of offering more flexibility and offerings to your users, it’s natural to also set out to increase merchant reach. The greater reach of your payment tender (e.g. more places your customers have an opportunity to pay), the more likely they are to use it to buy from those places.
High-functioning rewards, loyalty, and cashback programs are successful in large part because of the places where customers can leverage them. You have to be where your customers shop. Period.
Now, expanding merchant reach sounds great in theory, but the time and energy involved in developing and managing merchant relationships in-house is often burdensome, even for the largest institutions.
To avoid piecemealing together a list of merchants, consider partnering with a network that gives you access to thousands of merchants your customers already purchase from. Oftentimes, these networks will give you access to merchant pools that would take months to build manually, in a matter of days.
Step Four: Implement a Loyalty and Rewards Program
As mentioned above, consumers have come to expect rewards when they shop. With online shopping more popular than ever, and inflation on the rise, customers are looking for ways to get more bang for their buck at the places they already shop.
To capture more wallet share, financial service providers need to put themselves in front of consumers early in the shopping process, and when it’s most relevant. By incorporating a loyalty program with rewards like cashback on e-commerce purchases, companies can incentivize shoppers to use a particular tender/card before they even add an item to their cart.
Tools such as a branded browser extension, popularized by companies like Capital One Shopping, can give your customers real-time alerts for cashback opportunities from merchants, right while they are shopping. These tools serve as ongoing branding for your company and your tender type, before shoppers even reach the checkout page.
By using a browser extension branded for your company, you can utilize the power of rewards to increase exposure of your brand while customers shop as they usually do, and further establish your tender as a preferred payment method.
Step Five: Maximize User Experience
The cornerstone of customer acquisition and retention all comes down to the best user experience.
Take PayPal’s journey as a small case study in UX. PayPal gave the consumer a lower-friction way to pay, with multiple touch points across payment options, all consolidated into one place. On top of that, they gave the consumer access to outstanding rewards and cashback opportunities with their $4 billion acquisition of Honey.
What the smaller, nimble fintechs are able to do is challenge the big banks and take share away from offering one or many of the dimensions outlined by PayPal’s blueprint.
When maximizing user experience, think about hitting these notes:
Ideally, you should be offering customers all of the above. The more of these options you can provide, the better positioned you are.
Winning the Tender Wars
Customer loyalty is a commodity companies can’t afford to lose. Gaining visibility for your tender type and offering more value at multiple touch points along the buyer’s journey, such as through rewards, will be vital for driving such loyalty.
While staying competitive in a congested market can feel like a losing battle, implementing these tried-and-true strategies will help you stave off customer attrition, offer your customers more value, and assert yours as a preferred tender type.
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January 25, 2022 at 05:47AM
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Battle for Customer Loyalty: 5 Steps to Win the Tender Wars - Finextra
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