Consumers are always looking for ways to save. Bank rewards programs, like cash back and loyalty rewards, are a few ways consumers try to spend less. In fact, 65% of respondents in a Bank of America survey cited access to rewards as the reason for opening a new credit card. Today, with consumers looking to save whenever and wherever, offering a rewards program is not optional for financial institutions. Failure to offer a rewards program leaves consumers with no reason to sign up for your card.
The neat thing about rewards programs is that it not only benefits the consumer. Financial institutions can likewise reap many benefits from enabling such programs. Rewards encourage repeat spending, create repeat buyers and loyal customers, and push your card to the top of a consumer’s wallet, especially if your rewards are personalized to each card holder.
Rewards programs tend to be perceived as a cost center, but they’re actually revenue generators because they promote spending.
Read on for more about why customer rewards are now table stakes for any financial institution or fintech and how they foster retention and increase customer lifetime value.
Rewards Are Now a Competitive Necessity
Many banks and financial institutions offer similar features – mobile apps, direct deposit, peer-to-peer (P2P) payment, etc. – that, to consumers, are but mere commodities. Rewards programs can help FIs and FinTechs stand apart from competitors and attract consumers, 37% of which would spend less if their credit card did not offer rewards.
Open banking has made it even easier to switch financial institutions if they’re not getting what they want or need. In fact, 22% of consumers in a Capgemini study frequently switch banks to get better benefits.
Plus, younger consumers tend to look for the best value before making a purchase. Discounts and promos play a key role in their buying decisions:
- In a study by Swift Prepaid Solutions, 80% of Gen Z and Millennial buyers said price is the most critical factor when making a purchase.
- Square’s Future of Commerce report showed that 20% of young consumers have used a promotion code they saw on a social media post.
- Afterpay’s Gen Z report showed that the primary reason both Gen Z and Millennials continue purchasing from a brand is the availability of good discounts and sales.
Rewards play directly into that motivation. We’ve even seen it among our issuer customers: BankMobile users who earn rewards make 51% more purchases.
Bottom line: If you don’t have a rewards program, you’re missing out on a huge opportunity to (1) meet consumer expectations and (2) engage your highest leverage audiences.
Rewards Breed Retention, Not Just Acquisition
Rewards are a great customer acquisition strategy (why not splurge if you’re getting 10% cash back?), but they’re also a great retention strategy – and that’s something banks really need. Bain theorizes that increasing retention by 5% can grow profits by as much as 95%.
It also saves banks money.
Current members of a bank have already worked with said bank, so they’re familiar with its offerings and culture, unlike potential new members who require outreach and orientation if they decide to convert. Then there are onboarding costs, like identity verification through third-party services, that banks must take on for newer members. But these costs don’t exist when trying to retain current members.
Beyond retention-based cost-savings, rewards can also:
Engage Cardholders
Large banks lose 10% to 15% of gross revenue to customers who stop using their services but never close their account.
There are lots of reasons a customer would leave a bank, like them finding better ease of access or rewards elsewhere. A recent study shows that 16% of respondents moved their money to a different institution because of lower fees and better cash back and rewards. In 2024, a large bank found that about 14% of its closed accounts had not redeemed any rewards the year prior to their closing, suggesting that the rewards weren’t interesting enough for customers.
And maybe this was because rewards weren’t personalized enough to motivate customers to make purchases.
Fintechs and FIs use commerce media platforms like Kard create rewards personalized to each account holder thanks to our strong coverage in high-density US markets. Not only do our rewards meet the interests and needs of each cardholder, but they also reduce redemption friction thanks to our no-click-to-activate model. Personalized rewards and easier redemptions drive customer retention, pushing your card to top of wallet.
Eliminate Loyalty Program Overhead
Depending on what rewards platform you use, it can be much cheaper and more efficient to use a third-party software than to set up a loyalty program in-house. Kard, for example, has an API-first design, making it easy for issuer engineers to hook up to proper internal systems. It automatically matches customer transactions to rewards, making it easy to track cardholder engagement, particularly after adjusting reward creative, copy, and notifications.
For marketers, Kard offers ways to increase cardholder engagement to build out a rewards programs with intuitive UI and customizable messaging templates.
You Can Expand Your Customer Lifetime Value (CLV) Through Rewards
Customers are more likely to value and use rewards that are personalized and relevant to them. This in turn means that customers are more likely to make purchases with your card or bank, and even turn into lifetime customers. Strong rewards extend CLV by:
Increasing Transaction Frequency
A bank’s credit card loyalty program may incentivize customers with every transaction – allowing them to accrue points, get discounts, etc. – which ultimately encourages repeat purchases.
And offering competitive rewards can make consumers use your card even more.
For example, 79% of customers in a study stated they prefer to use the same card online and in-person. If your card offers competitive incentives for making transactions in both settings, it’s more likely that it’ll be top of wallet.
Shaping Customer Behavior
Cash back rewards create a “habit loop” that solidifies “top-of-wallet” status.
An example is when a customer receives the same personalized reward for a product they often need and purchase. And if this reward is only offered on your card, they’ll likely continue using this card. It’s even better if the card offers personalized rewards for multiple products that a customer often needs and purchases.
Differentiating Your Brand
Not all cash back rewards are the same and each one encourages different consumer interactions.
Active cash back rewards, like ones that are rewarded almost instantly after a purchase, encourage customers to spend, even if on items that they may not frequently purchase, so that they receive this reward. Passive point programs, on the other hand, encourage customers to make repeat purchases so that they may eventually receive cash back. This type of program also encourages customer loyalty.
Rewards as Revenue Engine: 3 Examples
Let’s look at three financial institutions that leveraged rewards to help them grow their revenue and increase customer retention and engagement:
1. Atlas
Though the Atlas Rewards Credit Card is geared toward consumers with little to no credit history, the card’s diverse rewards also attract consumers.
In fact, Atlas consumers who use rewards have a 163% higher average customer value than those who don’t. Kard’s cash back rewards helped Atlas gain a 44% customer retention rate increase.
And the benefit of a strong rewards program doesn’t stop here. Consumers who earned rewards engaged more with Atlas as they made 100% more transactions with their card than unrewarded users.
2. BankMobile by BM Technologies, Inc.
BankMobile’s new rewards engine similarly increased consumer engagement and spending. Aimed at college students, BankMobile offers cash back rewards for big brands like CVS, TurboTax, and major clothing retailers
In only seven months after launching this engine, BM Technologies, Inc. saw a 157% increase in BankMobile users redeeming offers. And 88% of BankMobile users made purchases after they earned their first reward, compared to 70.3% of users who made a purchase after their first purchase.
3. One of the Biggest All-Digital, Mobile-First Banks in the U.S.
One of Kard’s first customers implemented rewards early on. This issuer used rewards not only as a strategic choice to enable loyalty, but also to increase customer acquisition.
Its rewards also increased the bank’s revenue as it multiplied its revenue growth 20 times. Additionally, rewards customers made 47% more transactions per month unlike non-rewards customers.
The Impact of Rewards on Other Core Financial Metrics
Rewards can help create significant impact in metrics beyond retention, acquisition, and revenue. The following key metrics can help track the impact of rewards:
NPS and MAU
Rewards programs also help improve NPS. Think about it: if a customer is very pleased because they earned a couple of bucks back on their purchase thanks to rewards, they could well recommend the rewards program and card to a friend. Customer word of mouth referrals are powerful.
You could even create a referral program that gives additional rewards for referrals, which can increase customer engagement and spending.
Further, fintech companies who use cash back as a rewards tool saw a 42% increase in monthly active users (MAU) among users who used cash back. Equally important, rewards come in all shapes and sizes, from exclusive perks to free products. This allows companies to tailor rewards to the needs and interests of each cardholder.
Predictive Churn
Rewards programs, specifically their accessibility and level of personalization, can significantly impact churn rates.
Users who exhibit a drop in reward redemption are often likely to close their accounts. They may do so because the rewards were 1) not enticing enough, 2) not personalized, or 3) difficult to redeem.
Stickiness
Is your rewards program sticky? That is, does it effectively engage users and encourage repeated use?
If your rewards create personalized offers for each cardholder, it’s more likely that they’ll use them. And if these rewards are available across products like savings, checking, and credit card accounts, there’s a higher chance users will engage with them more frequently. Getting cash back on more than one type of transaction creates more opportunity for customers to earn, therefore making the rewards program stickier and increasing purchase frequency.
Institutions should consider creating consolidated rewards systems, especially as 67% of consumers mention they would prefer a loyalty program that consolidated their rewards currency.
Repeat Purchase Rate (RPR)
RPR is a strong indicator of customer loyalty. Having a high RPR percentage is a good indicator that your rewards program is effective and working for customers.
Active Engagement Rates
These rates are great to use when trying to distinguish very engaged, “loyal” members from more inactive ones. Paying close attention to who is using your rewards and how often can also help you reconfigure your rewards programs; you can see which rewards are working for which users.
Redemption Rates
These rates focus more on the rewards themselves as they calculate which rewards were most and least redeemed. They can also help you revise your rewards program as you replace less frequently used rewards with ones more tailored to your customers.
5 Ways to Differentiate Your Rewards
It’s important to have your rewards program stand out in a crowded market. Here are five ways to build a successful loyalty program:
1. Relevance
Rewards need to be personally relevant for customers to care enough to earn and use them. To make them relevant to each cardholder, fintechs and FIs should consider a customer’s age, income, geography, habits, and previous spending behavior.
2. Simplicity
Using rewards should be simple, quick, and easy to use! If they’re not, you’re introducing redemption, and that means users are less likely to participate.
3. Urgency
Consumers are more likely to engage with rewards when they know they’re only available for a limited time. Structuring rewards within a time frame and with expiration dates to encourage consumers to take action.
4. Consistent communication
Frequently reminding consumers about their unused rewards and new rewards offers helps maintain and increase consumer engagement.
Personalized push and email notifications about rewards encourage consumers to interact with your rewards program. On average, 44% of consumers need two to four prompts before redeeming a card-linked offer.
5. Positive and tailored tones
Having a positive brand sentiment across communication with consumers can help increase engagement. Tailoring tones in messaging to cardholders based on their demographics can as well. Younger, Gen Z audiences may respond more to playful and emoji-filled posts than older consumers, for example.
Did you know? Differentiating your rewards is easy with Kard. We have over 47M+ cardholders within our network, and even more with our partner Fetch. We offer rewards for hundreds of merchants for cardholders to shop at. Our large scope and collection of first-party transaction data allows marketers to learn more about their customers’ shopping patterns which, in turn, lets them send personalized cash back rewards offers. Kard is well-equipped to help issuers create a strong financial customer experience.
Rewards are Crucial and No Longer an Option
If you don’t have a rewards program, you’re already behind. Consumers expect you to reward them for using your card, and will switch to a different one that does in a heartbeat.
But to some extent, rewards are also a commodity, which is why it’s important that your rewards program stands out among others. And differentiating your rewards program from others doesn’t have to mean using up all your time, resources, and budget.
In fact, rewards can be a growth lever, especially when you invest in designing a program positioned to generate revenue. A well-designed rewards program can increase CLV, redemption rates, and basket sizes, all of which increase consumer spending.
Want to learn more about how Kard’s comprehensive commerce media network can help your customers engage more with your rewards program? Get a demo of our API-driven and merchant-funded rewards platform today.
FAQs on Importance of Customer Rewards
What is the ROI Timeline for a Rewards Program?
It depends on a couple of factors. Essentially, the more visibly, urgently, strategically, and consistently you promote your rewards program, the more likely you’ll see a quicker ROI. However, you don’t want to overdo your level of promotion so as to bore or turn away consumers.
How Do Rewards Reduce CAC?
Because they attract people to sign up for your card. If you offer good and relevant rewards, people will use your card. Personalized rewards are now table stakes, which can make your rewards stickier.
Like we’d mentioned earlier, BM Technologies, Inc. saw a 157% increase in BankMobile users (who tend to be younger college students) redeeming rewards offers for partnering retailers. Another issuer saw that 47% of their rewards customers made 47% more transactions per month compared to non-rewards customers.
What Security Requirements Should You Consider With Rewards?
SOC 2 and PCI SAQ compliance should be met when designing rewards programs. Meeting these standards not only helps you as a business, but it eases consumers’ worries around data privacy. Kard doesn’t collect any PII, so consumers can rest assured knowing they won’t be identifiable.
So while rewards can be personalized based on consumers’ purchase history, it needs to be anonymized and properly stored so that user privacy is respected and compliance measures are met.
