A new research report advises financial institutions to reassess their rewards programs and implement merchant-funded rewards programs, with merchants picking up a larger portion of program expenses to offset the effects of the Durbin Amendment.
With new regulations, including the Durbin Amendment and Regulation E, on top of decreased consumer discretionary spending, financial institutions are facing significant revenue reductions and are looking for solutions to recoup the lost money.
Javelin Strategy & Research released its latest report based on data from more than 15,000 consumers.
“Consumers love rewards – almost two-thirds of consumers say that rewards drive their payment choice,” Beth Robertson, the director of payments research at Javelin, said. “But FIs (financial institutions) don’t have to accept the status quo of traditional rewards programs. They can offer customers a richer reward experience that satisfies their customers, while enabling delivery of more cost-effective programs.”
Merchant-funded rewards reduce costs, generate revenue and build customer loyalty, according to the report. If merchants team with financial institutions, they will have access to financial institution's transaction data, which will enable them to develop direct marketing strategies.
Robertson said the consumer transaction data that financial institutions would provide to merchants would allow them access to demographics, location, purchasing behavior and retail history.
The report also advised financial institutions on how to utilize mobile technologies and social networks for rewards programs and advised how to develop and match rewards strategies to consumers’ behaviors, demographics and payment preferences.