How rewards programs work in digital banking

The development of IT solutions for digital banking is booming. So-called rewards programs in digital banking represent one of the most effective methods of digital interaction in the industry.

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They manage to increase users’ interest in the products and services offered and improve customer loyalty levels.

If you’re a rewards hunter or want to know how they’re executed, you’re in the right post!

How are rewards programs developed in digital banking?

These rewards programs are part of a business model that prioritizes the participation and loyalty of users over the profit margin of operations.

This phenomenon belongs to a larger current of online commerce, a common method for any company operating in the digital environment.

Loyalty programs

While loyalty programs of this type are not new, their production and implementation are now highly developed. 

Reward programs are part of this:

  • They seek to offer attractive incentives to increase user participation. 
  • Establish a stronger linkage with the entity and its products and services.

Digital banking implements rewards programs through the development of financial applications that connect institutions with fintech companies

These have data on users that improve the performance of operations and make it possible to improve commercial performance. Of course, users give their consent to use their data in this way.

By having records of online commercial transactions, fintechs offer the banking sector the possibility to get to know users and their interests better and to develop customized products and services

According to a study by Virtual Incentives, 56% of consumers say that the possibility of receiving an incentive often motivates their purchases or acquisition of services, especially when it comes to online shopping.

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Let’s look at it with an example of Starbucks

An example of a successful rewards program is the Starbucks loyalty program, called “Starbucks Rewards”. This program allows customers to accumulate points (called “stars”) each time they make a purchase at Starbucks and redeem them for beverages, food or any other product available in the store.

In addition, Starbucks Rewards members have access to exclusive benefits, such as free drinks on their birthday, special offers and discounts on select products. Customers can also level up in the program, allowing them to earn additional rewards and exclusive privileges.

The Starbucks Rewards program has been very successful in attracting and retaining customers by offering a personalized and rewarding experience for members. According to a company report, in 2020, the program had more than 19 million active members and contributed to more than 50% of U.S. in-store transactions. This success is due in part to the simplicity of the program, which is easy to understand and use, as well as the variety of rewards and benefits it offers members.

Now, imagine all the possibilities you can include in your digital banking.

How reward programs are integrated

This type of program is closely related to the development of so-called application programming interfaces (APIs). They are responsible for linking banking and financial institutions with the technology companies that have the data and information on users’ transactions.

The integration of reward programs consists of specifying the actions that will be implemented automatically.

Different types of incentives, rewards and rebates such as cashback can be specified given certain conditions (number of payments, dates, purchase periods, etc.).

Once users’ activities exceed certain conditions, the applications issue these types of rewards automatically and in a personalized way. In this way, APIs ensure that data is kept up to date, while digital banking applications are programmed to execute the rewards for users.

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How customer loyalty is built through rewards programs

Customer loyalty is the main objective of the reward programs currently used in the digital environment, including banking. However, these types of marketing strategies have been around long before the digital environment was consolidated as the main commercial activity space.

In the digital and banking environment, loyalty techniques are multiple and reward programs are just one of them. Loyalty in this case occurs through applications or platforms that determine different types of discounts, bonuses, refunds, among many others. This ensures that the user gets a personalized service.

Thanks to this, the user finds a greater benefit for his link with the entity and his activity is rewarded. In everyday terms, operations and rewards are integrated into the household economy and are foreseen by users as part of their lives. In this way, they feel that they have invested in an institution and seek to take care of this investment in order to maintain their benefits.

You may be interested in learning more about the benefits of white label and customer loyalty.

How Banks and Users Benefit

Some of the benefits of implementing rewards have already been mentioned. Such as loyalty and commercial performance for banks and incentives, bonuses and rebates for users. However, it is worth going a little deeper into these and other benefits.

From the user’s point of view, rewards represent savings in the form of discounts and cash. One of the main advantages of using these techniques is that the user does not have to change his or her shopping habits or take any other steps to obtain these benefits.

Likewise, the bank obtains multiple benefits in terms of customer loyalty. Also in terms of customer participation in the portfolio of products and services offered by the bank. Rewards are benefits that incentivize the customer to obtain new services or products that he would otherwise never have sought.

The banking industry recognizes the need to develop better and increasingly advanced financial management systems for its customers. Precisely, the loyalty that results from the implementation of rewards programs in digital banking is essential.

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