PCM Volume 3 - Issue 1: Customer Loyalty Realities by PCN Magazine

Vol 3. Issue 1 | January 2017

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Letter from the CEO

2016 was a great year for the world of Payments & Fin Tech as well as a tough year for companies struggling to innovate. As we embark on 2017, I feel we are on the verge of further disruption and it will be the innovators, not the imitators that will prevail as we move toward the end of the year. Here at Payments & Cards Network, we have had a great year despite many new players coming onto the market. From a recruitment perspective, we have branched out into the USA with a team of 3 in 3 different states (Arizona, California & Texas) with a combined experience of 15 years between our recruiters. We have hired a new member of the team here in Amsterdam to focus on the LATAM markets, starting with Brazil. Giovanna Adam is from SĂŁo Paulo and will be heading up this initiative. The UK continues to be a large market for us with Lewis Howard spearheading the operation. Lewis has had an excellent year and is mentoring Sam Oâ&#x20AC;&#x2122;brien from Dublin who came from an investement background in global markets to now bolster our efforts in the region. It is our responsibility to stay ahead of the curve and drive innovation as well as niche focus within this ever-expanding market so in 2016 we also hired Lucas Schweiger to head up a Blockchain team. Lucas has previous experience in the Bitcoin & Blockchain markets and will be running a duel desk to help companies looking for short term freelancers as well as permanent hires. 3

Aside from the above new initiatives it has been business as usual at PCN, strengthening our awardwinning business by winning exclusive, global RFPs with some of the largest names in the industry who will further expand this year globally. Our existing clients have benefited from a record-breaking year retention wise with our placements seeing a 98% retention on average which is far above industry standards and that of their own company churn, something we are most proud of and solidifying our value add. We are also very proud of our partnership with the Merchant Risk Counsel (MRC) which we established in 2016 to further our commitment to the industry. We have a Risk & Fraud vertical focus headed up by Sam Spall out of Amsterdam and he will continue to nurture this relationship with the MRC whilst able to advise the Risk & Fraud area of the industry from a recruitment perspective. The online community, where Payments & Cards Network started is fast approaching 40,000 members and our magazine has a readership of over 80,000 Payment professionals which is a staggering achievement for our marketing team, in particular Layla Durrani who heads up our social media, Duc Dang who creates the magazine and Amir Abdin who leads the team. The magazine will also have a Merchant Focus this year adding value to our advertisers and ensuring the merchants also get to highlight their innovations and thoughts. Keep your eye out for our quarterly industry meetups & events this year. The last meetup took place in December 2016 at our offices on the Herengracht in Amterdam and was a huge success with topics covered such as PSD2 & Acceptance, talks given by Booking.com & Accenture and panels with PSPs, Merchants, Vendors & Consulting companies alike. Updates on these and registration at www.paymentsandcardsnetwork.com As every year, we surveyed the industry over the course of 2016 and interviewed thought leaders from Australia, North America, Asia, Africa, South & Central America, the Middle East and Europe to establish trend predictions for 2017. Thought leaders included suppliers, banks, credit unions and enable us to see various trends emerging. We predicted in 2016 the rise of open APIs (Banking) and this seems to be a common prediction among thought leaders moving into 2017. Expanding partnerships between fintechs & banks was also a much-discussed topic as well as increased use of Digital Payments in general. Something we noticed whilst surveying was that everyone was discussing investing in innovation even though they saw companies consolidating existing technology. The relentless exploration for new and advanced tech was a constant talking point even in the face of regulatory changes. A full report on our findings will be available in Q2 of 2017. I think 2017 will bring many ups and downs as disruption continues, â&#x20AC;&#x153;challenger banksâ&#x20AC;? emerge and the race for innovation goes on. I would like to thank the ever expanding, talented, passionate and amazing team we have here at the Payments & Cards Network, particularly our management team, Rogier Rouppe van der Voort and Charles Guinet, our clients for their ongoing loyalty & support as well as our growing list of competitors for keeping us ahead of the curve. Thank you for reading and have an outstanding 2017.

Jordan Lawrence CEO Payments & Cards Network

Contents Amir Abdin Editor-in-Chief

amir@paymentsandcardsnetwork.com

https://nl.linkedin.com/in/amir-abdin-21365683

Duc Dang Production Editor

duc@paymentsandcardsnetwork.com

https://nl.linkedin.com/in/ducdanghh

STORIES 6

Digital loyalty on the rise

Is this the year real-time delivers

The loyalty journey

The bumpy road of customer reward programs

17 20 21

Start-up Spotlight: Yoyo Wallet Hot Jobs Events

THANKS TO OUR PARTNERS Layla Durani Editor

layla@paymentsandcardsnetwork.com

https://nl.linkedin.com/in/layladurrani

PCM is designed by Duc Dang, Payments & Cards Network. Art and photos © Payments & Cards Network, picjumbo.com and Shutterstock.com, excluding advertisments and company logos. PCM™ is property of Payments & Cards Network, Herengracht 576, 2nd Fl., 1017 CJ, Amsterdam, The Netherlands. All material contained within PCM is the property of Payments & Cards Network. All other product and service names may be trademarks of their respective companies. ©2017 Payments & Cards Network. All rights reserved. Reproduction of any kind is strictly prohibited without express prior written consent of Payments & Cards Network. ADVERTISING INFORMATION For details, please contact amir@paymentsandcardsnetwork.com

Thought Leaders Corner

Digital Loyalty on the rise by Martin Christl

he turn of the year is the most important time for retailers as it comes to the highest generated revenues and the highest number of client contacts. Cultivating these contacts and staying in touch with consumers for the rest of the year is a challenge as consumers are overwhelmed with offers, and they are expecting benefits and best offers available throughout the year. In this context, loyalty schemes play an important role and are at the heart of many merchantsâ&#x20AC;&#x2122; customer engagement strategies. The transformation of loyalty engagement is supported by advanced mobile technologies available on a broad base and with highly tailored engagement services. A mobile loyalty programme builds not only a new sense of affinity between consumers, brands and merchants but works in line with consumersâ&#x20AC;&#x2122; interests. And thus leading to greater customer retention, interaction and achieved sales revenues. The role of mobile loyalty engagement To condense loyalty strategies to the core elements, a successful loyalty programme generally (a) motivates consumers within a specific market to return and purchase more often, (b) heavily reduces churn with regular consumer interaction and finally (c) dramatically improves a sustaining brand affiliation.

Thought Leaders Corner Of course loyalty programmes also address several other purposes and crucially they are a strong mechanism to enable merchants and brands to generate knowledge about individual behaviours and aggregate these into manageable clusters. A brand can furthermore use aggregated data to gain insights into changing consumer behaviour, such as how the purchase of specific products changes. With this, retailers can use deep knowledge to engage with individuals in context through email, social networks, web sites, mobile apps or other channels. At the Point of Sale, consumers present their loyalty card to collect points or specific beneficial offers - and the merchant collects transactional data for that individual consumer. More and more these plastic based cards are being supplemented by mobile apps, which leverage existing technologies such as bar codes, QR codes or NFC tokens, to enable the consumer to both accumulate and redeem points, or simply offers consumers better prices. The rising role of digital loyalty and couponing Many coupons are issued entirely independently of loyalty programmes to push sales. Nevertheless these marketing tools perfectly complement each other effectively. Coupons are an integral part of the customer engagement and incentivisation process for both brands and merchants. Although coupons are being used as one-off incentive campaign to instantly change a consumer’s buying decision and behaviour, they can also be used to initiate a sign up for a programme and sustain an ongoing relationship within the complete framework of a loyalty programme. It is state of the art, that coupons are issued in many different ways and via various channels such as direct mail, on a pack, via the Internet, inside a magazine and last but not least on the mobile channel. This is indeed one of the most engaging situations nowadays: benefits are delivered directly to the customers’ smartphone regularly, at the right place, in the right situation and at the right time. The role of mobile first technology for merchants Merchants can perfectly use mobile technologies and services to attract consumers and guide prospects into their stores with individual communication relevant to the recipient’s context. In-store, merchants use mobile contactless technologies for location aware interactions, such as GPS and Beacons, to influence consumers in a shopping situation such as automatically opening the mobile loyalty card and the distribution of personalized offers and coupons. Moreover, merchants and brands can use mobile technologies and services to increase the effectiveness of marketing campaigns in real-time with proper reach and high relevance, while also reducing coupon-related fraud and closing the coupon clearance loop digitally. The role of the mobile wallet for consumers It’s obvious that each and every brand and merchant tries to have its very own app out in the market. As individual consumers interact with many different merchants and

Martin Christl Business Development Executive at bluesource Martin Christl is Business Development Executive at bluesource, with extensive Marketing & CRM, Product Management and Innovation knowledge. He’s been working for 10+ years in the mobile industry space within large entities like Deutsche Telekom or Ericsson addressing large scale programmes and projects.

brands, the hope is that they will start using all individual apps for their benefits. But this is simply unrealistic, as many of these apps are deleted by consumers after a few months of usage. On the other side – and this is an important aspect consumers want to find all benefits in one relevant place. This leads sooner or later to a fundamental consumer decision about which merchant or loyalty app is used continuously. One strategic approach to encourage this behaviour is to extend the communication and service channels in well known mobile-wallets out in the market. Mobile wallets are beneficial for the ecosystem Operators of a mobile wallet ecosystem like banks and MNOs can dramatically help merchants or brands to use multiple datasets to ensure their loyalty programmes are directly relevant to consumers. With the explicit permission of the individual, a broad array of contextual data captured by the wallet operators is served to the stakeholders, such as location and interest history. This is then analysed and used to provide utmost relevant information and offers to

Thought Leaders Corner consumers. Having relevant targeted contextual information, brands and merchants can effectively give customers a steady and seamless customer experience to help them feel cared for and feel that they’re being treated specially. What’s ongoing in the loyalty ecosystem In the modern digital transformation age, the smartphone is a multipurpose, “always on” and “always carried” personal device. This enables innovative loyalty use cases in developed markets and is becoming rapidly adopted in developing countries. Today, wallets have been around for a certain time period, but they are still not at the predicted success rates of many analytics and research institutions (Forrester, Gartner, CapGemini et al). Mobile wallets have gained some traction within the millennial group and tech savvy people in the last decade but still lack in broader market adoption. The easier road to go down in the short term is to do things alone in a closed loop environment, focusing on the own agenda which results in limited relevance again. There’s a huge potential to grow aggregated services that create more and more beneficial experiences that finally drive consumer adoption and secure user retention. The rise of loyalty and value added wallet services As we are in the final rise of mobile wallets, the ecosystem should do more to foster appropriate adoption. Having said this, the main aspects and drivers to higher relevance is ensured with a comprehensive set of services like ticketing, access, loyalty cards, couponing, personal ID or smart communication channels. Several reports from the past two years clearly show that loyalty transactions are key for adoption besides frictionless usage. It is possible to build a compelling consumer proposition and get

the buy-in of consumers more seriously and especially longterm. And now things appear to be shifting again in the “Wallet Wars”: Along with Apple, Google, Samsung and AliPay, other wallets attached to an off-the-shelf ecosystem are becoming increasingly interesting. An open ecosystem driven aggregator approach is bringing value to a broad range of stakeholders like banks, MNOs, brands, merchants, franchisees and shop owners, and many more. It helps them to protect their stakes with higher reach, relevance and less effort. The role of mobile-pocket If you own or operate a mobile wallet, it is both a demanding and privileged situation in segmented European markets. The challenge with user stickiness, convenient loyalty use cases and lack of communication channels for targeted beneficial offerings is always progressing. The mobile-pocket loyalty HUB is built to easily enrich the loyalty services baseline in a wallet. The services are starting from very basic, but relevant, functionality of storing loyalty cards, towards more advanced capabilities of targeting and engaging consumers individually. While enabling merchant and brand communications functionality, the HUB ensures adoption and active users, increases relevance, pushes transaction frequency, offers higher reach over the HUB ecosystem and maintains consumer happiness. The joint vision, signed by all partners, is to individually serve the ecosystem, protect their stakes and ensure a sustainable long-term approach – it is simply designed to increase user retention rates, leverage loyalty services and offers convenient incentivisation capabilities for consumers to feel individually cared for.

bluesource mobile solution gmbh bluesource mobile solutions gmbh is situated in Hagenberg that is also known as Silicon Valley of Austria. The company is focusing with innovation and expertise on the development of mobile solutions and apps for big brands, merchants, operators and financial institutions. Special focus is brought to mobile marketing, mobile payment and mobile commerce sector. The most known solution of bluesource is mobile-pocket, an ecosystem for mobile loyalty and reward solutions. It unifies users, retailers, wallet- and content-providers on one platform and its features enrich wallet and payment services.

Looking for talent in Payments? Post your job for free! www.payment.jobs 009

Thought Leaders Corner

Is this the year real-time delivers? by Doug Sutherland

017 will likely be a very interesting year for real-time loyalty technology. While retail has the perfect brew of need and technology to deliver real-time loyalty to their consumers (although few have actually tried), the more interesting opportunities await the Fintech companies who choose to tackle realtime loyalty for banks and credit card issuers. One of the biggest payoffs for both brands and Fintech could be introducing real-time loyalty into the credit card payment ecosystem. Nobel Laureate Daniel Kahneman, known for his work on prospect theory, researched how people made decisions based on the potential value of losses and gains rather than the final outcome. I have seen first-hand how a real-time loyalty scheme introduced into the credit card ecosystem can appeal to those same psychological drivers. Empowering consumers to „feel“ the scheme‘s value in real-time during the transaction has

deeper loyalty engagement and can more broadly deliver on the promises of recency, frequency and lift than any program based on a reward that will be received down the road. This is, of course, my opinion. To borrow from Kahneman‘s own words: except for some bias that I attribute mostly to age, my intuitive thinking is prone to overconfidence and extreme predictions. Real-time loyalty has proven to be much more difficult than it sounds. I believe this is particularly true amongst banks and credit card issuers who perhaps face tougher issues than a retailer may face. However, I believe this is the year that real-time loyalty can deliver beyond retail. There will be significant improvements in real-time action-oriented engagement in 2017, some of which may include: redeeming points for

purchase, extending gamification to the transaction, and cross-promotional offers amongst brands that reward the consumer with a complimentary item based on their purchase and geo-location. Regardless of retail or otherwise, the coming year will undoubtedly see technologies emerge that allow for personalized real-time offers on consumer-facing displays, customerspecific data being displayed on CSRfacing monitors, and real-time offers being delivered via mobile devices. Achieving real-time loyalty will require some new ways of thinking amongst loyalty firms or by niche Fintech players. I believe tackling real-time loyalty will require firms to address three key aspects of the brand‘s readiness for realtime loyalty: source data integration, offer management and personalization.

Thought Leaders Corner Who will tackle these three head on? I suspect that for those loyalty firms who are proudly featured in Gartner or Forrester research papers, it will be business as usual in 2017. Perhaps they will align their technologies towards real-time analytics, predictive analytics and omni-channel capabilities, but I don’t expect they will be attacking the real-time loyalty spectrum very deeply. This leaves the doors wide open for Fintech’s niche players who can choose to focus on real-time within the credit card payment ecosystem as well as at the retail point-of-sale, where real-time loyalty will have enormous return on investment. But there are many other areas where real-time loyalty can be delivered such as at the ATM or inside the bank branch network. Source data integration can be a complex undertaking within any brand, but it is often far more complex within the banking community where systems, privacy, compliance and governance can all complicate acquiring and utilizing data, let alone using it in real-time. From data lake technologies to enterprise service bus architectures, integrating and exploiting data must be addressed as an integral part of real-time loyalty. Retail leaders who have doubled down on real-time POS integration run their businesses differently, rely more on realtime business intelligence, and reward consumers accordingly. By solving source data integration for banks and credit card issuers, real-time loyalty can be delivered within the transaction. I think you will see technologies such as data lakes and blockchain being leveraged to help solve source data integration challenges in 2017. How brands are managing offers will continue to improve in 2017. Last year I was surprised by the number of brands who wanted to personalize offer management but were already struggling to prove the ROI of their existing loyalty or rewards program. Many cite reductions to the resources meant to support their programs. Many were struggling with the effort required to interact with the 40% plus of consumers who were mobile centric. Watch for technology that will

revolutionize offer management in the coming year. Brands will need to create many offers, perhaps tens or even a hundred offers. The offers engine will use algorithms to identify who would most likely benefit from receiving a specific offer, while at the same time, evaluating how the offer will improve frequency and lift for the brand. This approach to mutually beneficial offers will be delivered using a real-time engine with sub-second capabilities. When I speak with brands about their readiness for loyalty in general, even before we tackle real-time loyalty, I will probe their success with personalization. “Hello Bob” at the top of a monthly newsletter is not personalization! In my observations, the sorry-state of source data combined with cumbersome notification technologies (or the overwhelming cost of outsourcing both) can severely limit a brand’s ability to highly personalize communiques and offers. Beyond just email, I like to probe how the brand is dealing with social media interaction. Perhaps the fluidity in social media makes it difficult for brands to predict where to make the investment, or perhaps the “how” continues to be elusive. While brands agree social media can be a vessel for enrollment, offers, notifications and personalized communiques, most lack the granularity in their systems to allow consumers to choose where to engage them amongst the myriad of social media destinations. I believe personalization is a core necessity in developing a strong loyalty program, whether real-time or otherwise. When it comes to personalization, banks and credit card issuers will need to mimic the success of retail market leaders such as Panera, Bed Bath and Beyond, or Starbucks. For those Fintechs looking to help brands achieve real-time loyalty, they will need to help first with personalizing offers based on consumer activities, product selection, visit and card use data. In the coming year, watch for the cost of personalization to drop significantly through new technologies and easier access to source data. Because real-time loyalty demands a strong set of delivery mechanisms,

Doug Sutherland Digital Loyalty and Consumer Engagement Strategist,@ Loyaltyworx Doug Sutherland is a digital, loyalty and consumer engagement strategist who specializes in payments, rewards and predictive analytics. Doug has helped brands drive higher revenues through profitable engagements as collaborator, builder, creative thinker and technologist.

doug@loyaltyworx.com

https://www.linkedin.com/in/loyaltydoug

brands will need to make investments in SMS, email, in-app and social media. Fintechs will need to include consumermanaged permissioning and data governance in their personalization engines, driving a whole new approach to real-time consumer engagement, and delivering the consumer facing capabilities of real-time loyalty. An amazing year is ahead of us. My extreme prediction is for many very interesting real-time loyalty technology advances. I predict the business needs of banks and credit card issuers will focus on real-time engagement and they will be fulfilled by niche Fintech players who possess the wherewithal to tackle real-time loyalty in new venues beyond just retail.None will be more challenging (or have a bigger return on investment) than delivering real-time loyalty into the credit card payment ecosystem.

Loyaltyworx Loyaltyworx employs marketing technologies to help our travel, retail, and financial services clients identify their ideal consumer, increase mind-share, drive higher revenues and increase lifetime value by designing, implementing, and renewing their engagement strategies.

Thought Leaders Corner

The loyalty journey by Kilian Thalhammer

oyalty is a very difficult and “niche” subject which is gaining more and more tangible relevance. The “battle” for customers is becoming tougher and more global. The channels are increasingly mixed (keyword omnichannel) and never has the competition been so fierce for the customer. And the competition is not only horizontal (more dealers), but also vertical (brand, aggregators etc.). Loyalty or the related building block is a way to actively engage with and influence the customer so that he does what ‘one’ wants. It is now time for loyalty to awaken from its deep sleep and join forces with other elements of the value chain. We need to look at loyalty not as a secondary theme, but rather as an integrated process component of the customer’s purchasing procedure--or the customer experience which becomes more and more important. What actually constitutes loyalty? For one thing, loyalty means that the customer has one brand strongly in mind and chooses to purchase from them again and again--the brand is the first one present in the customer’s mind when it comes to a purchasing decision. This is either because the brand is so strong or the product has a corresponding unique selling point or lock in effect. Take for example, Apple, or even the local mom-and-pop store which you are attached to because it’s around the corner and you have a personal relationship to it. Here, above all, platforms and ecosystems play an important role. This brings up the question if, in the end, you don’t have a real loyalty to your ecosystem (for example, Amazon, Apple, Google, Facebook, (GAFA) Alibaba, etc.), but rather that the seller creates loyalty with offers, mainly couponing in retail. Seen in this light, the concept of loyalty mainly

related to the latter is rather misleading. The customer is not loyal but rather lured to the point of sale via campaigns. Often he is even rewarded by “in-store or checkout coupons”, which is more an up- or cross-selling mechanism than an expression of loyalty. How do loyalty and payment interact? From the point of view of the customer, both topics have little to do with each other. Payment is a commodity for the customer. Without payment he receives no product. Therefore he thinks about it implicitly, rather than explicitly and of course he would rather not pay at all. Loyalty should be explicit, above all when steered by the retailer or the brand. The customer should do something consciously and gladly and, at best, in a self-motivated fashion. This represents, in some respects, a conflict of objectives which must be solved through a process. Not only the trigger is different, but the moment when you are engaged with the customer is never 100% the same. For both, the customer’s trust in the provider is very important. Security, data protection, and transparency are paramount in this process. From the perspective of the transaction, there are some obvious synergies. The touch point with the customer, at least for the collection/identification process, is the same as the point of sale. The background processing is transaction-based and is partly subjected to analogous security precautions (albeit not so standardized in the loyalty area). Thus the question arises, why should each person individually have the same costs, if, after all, parts overlap and then finally only one must pay. Above all, the components “terminal”, “card/

Thought Leaders Corner app as carrier medium” and “network operation” (the procedural transaction) are elements that can be merged. The backend systems, per se, will end up diverging again in the end - in Step 1. The great difficulty operationally is above all the shopping basket in the retail food trade. Functioning loyalty and campaign mechanisms without the shopping cart have not proven themselves - see Card-Linked Offers of Schemes. From a strategic perspective, payment providers are seeking ways to expand their creation of value. The buzzword “value added services” (VAS) has been wandering through the aisles like a ghost for a while now. In recent years, the margins have shrunk, both on the side of the processing companies, such as PSPs/network operations and on the side of the issuer, mainly through regulation. The theme of loyalty in combination with the marketing of customer data appears on everyone’s list of services which one would like to offer in an integrated fashion. This is where one believes they can sell something more to the distributor and also truly know the consumer. To what extent this will be crowned by success remains open. Just for background: Banks have been trying to monetize data for years. Somehow it doesn’t work in spite of new buzzwords like Big Data and the next wave of digitization initiatives. Payment and loyalty also differ significantly. The loyalty of the customer is especially evident before the purchasing process. Then the customer decides when and where to buy something and is loyal to his dealer or his brand - or he’s just lured in by the price. At the POS, loyalty is just transacted. Payment takes place for the most part only at the POS, which is one-dimensional and goal-oriented, with fewer options - you either pay or don’t pay. Loyalty is a more fluid concept and difficult to measure. Payment, in contrast, uses more hard facts. What constitutes the “German” best? Payback slowly approaches the topic of payment. But it is only a feature and not an actual product. The opportunity to use Payback Pay is “hidden” in the app and is only partially advertised. This is a conservative strategy from a market leader who continues to focus on his existing business, but notices that it is necessary to position the business more broadly. It is a step by step approach. Payment will arise and become more prominent here. But this will take time. An interesting point is that Payback, an AMEX company, did not choose a card based approach as it is direct debit. Apart from the strategic point, this could lead to some misguidance on the consumer side, as they are pushing AMEX Payback cards in the market right now. If the cashier asks, “Do you want to pay with Payback ?”, what is the reaction of the end consumer? Nevertheless, Payback Pay is a good integrated payment feature, which solves some of the known payment processing issues but not all of them. The bottom line

Killian Thalhammer Investor & Advisor in the Fintech Sector has been in the area of Payment / FinTech / eCommerce & Loyalty for more than 15 years. After his role as Director Solutions for Swiss Post, he was CPO with RatePay (Otto Group) and Managing Director at PAYMILL (Rocket Internet). Kilian is currently a consultant (e.g. International Expansion for Iyzico) and Business Angel/Investor (Lodgify, Loyaltyprime, Savedroid) in the Fintech environment.

level. The upheavals in the area of payment now bring in more momentum in this space. Through market conditions, the payment providers are forced to seek new sources of revenue. Loyalty is an obvious point of focus. Operationally there are certainly many synergies in that respect. In relation to the customer, loyalty must be packaged well and always sold and positioned in combination as added value. Loyalty in itself helps the payment industry more and more in the sense of thinking of the customer, because loyalty puts the customer more in the spotlight than payment ever did. Use cases become interesting where the process step of payment takes a back seat (e.g., Uber) or the payment is positioned before the actual classic POS (login with PayPal). New types of play will be developed in that space to win the loyalty of the consumer. The theme of voice for example Alexa, Google Home, or the like will shake up the process chain and the possibilities. Exciting times are ahead for both the payment and loyalty areas, and what will become of them in the future.

Payment and loyalty should have grown together operationally for a long time. To date this has only happened on the theoretical

expert interview

the bumpy road of customer reward programs

he commodisation of financial products means financial service customers expect the same approach to gaining and retaining their loyalty as they receive from the retail and travel indutries. Many industry players in the financial sector have learnt from their counterparts in this domain. We sat down with Brent Badger, VP Insights Products at Vantiv, to examine both benefits and challenges merchants are facing whilst dealing with loyalty programs for customers. What are the main benefits of running a loyalty program from a Merchant PoV? Benefits of a loyalty program for merchants are wide ranging, and vary based on the size and category of the merchant and the context in which “loyalty” is defined and applied. At their core, the underlying intended benefit of most loyalty programs is to cultivate richer customer relationships (as a means to capture more of their attention and dollars). The vast majority of loyalty programs are really frequency or discount programs – most applied as digital “punch cards” that track historical purchase activity in exchange for immediate or future discounts. A primary underlying benefit, particularly for smaller merchants and high frequency/low ticket categories like grocery or drug, is that the loyalty program helps to build customer profiles. Depending on the execution, the profile may be limited to a phone number or email address with purchase history – or could be more complete demographic profiles. Regardless, the second primary benefit is to leverage that customer profile and

accompanying communication channel (e.g. mobile app, email, social media) to message customers, most often with offers and discounts, less often with other notifications such as upcoming events or other news. The intended result, of course, is to drive incremental sales. While many programs no doubt produce that result, it is often difficult to measure and typically falls short of enabling a deeper relationship. Programs that rise above the noise of now ubiquitous frequency programs go beyond simple “earn and burn” discount or rewards and create unique experiences that more effectively drive the intended result – richer customer relationships. A recent example in the QSR category is an “order ahead” model that allows customers in the loyalty program to pre-order and even pay, for their order in advance – skipping the line while having fresh food or coffee waiting to just grab and go. This and similar models go beyond the reactive nature of most programs and arguably influences behavior prior to or during the purchase decision by creating a unique, more personalized experience. What are some challenges merchants face when running a loyalty program? By definition, a merchant loyalty program only takes into account a customer’s behavior and patterns with that merchant, which is an artificial view. Also by definition, “loyalty” suggests a customer’s preference for a particular merchant or brand over other options. Merchant-based loyalty programs don’t have visibility to any outside behaviour or spend, so therefore cannot truly know or influence the customer’s purchase decision.

expert interview This Month’s Expert

Brent Badger

VP Insights Products, Vantiv, Inc. Brent Badger, Vantiv’s Vice President of Insights Products, is resposible for helping retailers know their shoppers through transaction-informed insights that help them grow through precision-targeted marketing and enriched purchase experiences. For more 20 years, he’s led the conceptualization and commercialization solutions that enrich customer experience and deepen customer relationships. The best the program can do, then, is maximize the appeal of that merchant, either by having the best discounts, the best experience, and of course the best product or service. Within the big picture, the biggest challenge is to create a loyalty value proposition that stands out in a very crowded space. In other words, go beyond the key-ring card or phone number application to create something truly unique. Consumers are becoming increasingly concerned about privacy at the same time. In order to ask customers to share profile information (even if only a phone number or email address) with a merchant on the context of a loyalty execution, there must be value returned in exchange. In today’s retail environment, discounts are everywhere. Consumers don’t need to be part of the loyalty program to get them. Thus, the key question merchants must ask themselves is “how do I go beyond discounts to create real value in the customer relationship to drive their loyalty and their next purchase?” Tactically, good programs must take measures to ensure the quality of the data capture by the program. If there is not a tangible benefit of providing complete or accurate information for enrolment into a program, merchant can count on “dirty” customer data – duplicates, invalid contact information, etc. For the program to provide actionable data, the enrolment processes must be designed to capture complete and accurate data. Particularly in everyday spend categories like grocery and drug stores and even restaurants; consumers tend to spend as households rather than individuals. Solutions for that particular challenge vary, but it’s an important point to consider when designing the program. What is the psychology behind using various reward systems (cash vs. coupons / discount)? At some level, discounts as rewards have a limited shelf life for driving true loyalty, irrespective of method of execution. Rewards by definition are reactive, and while they may contribute to the decision to make a future purchase, that linkage is indirect at best. True “best customers” would likely have made the next purchase anyway; therefore, it is impossible to attribute “loyalty” to a discount program. That said, discounts are a part of even the best loyalty programs. The key is that the discount be positioned to maximize the customer’s perceived value while minimizing the margin

impact. The key to their application is that they a positioned to drive an incremental visit and/or incremental spend in the next visit. A strong application of discounts lies within the Starbucks program, where reaching a particular threshold of spend yields a free menu item to loyalty members. In its most recent incarnation, the spend threshold is independent of the number of purchases, so the threshold can be reached in just one transaction in theory. In this application, the total margin is protected, while still providing an offer to be applied in a future visit. And – in that next visit, the objective, of course, is that the free item is accompanied by other (full margin) purchases. However, if not, the customer experience is positive enough that the next purchase will be at Starbucks. What advice would you give to companies (Merchants) who would like to implement a loyalty program? Consider programs and designs that reward the “total customer” – know who the customer is (individual or household, for example), and design accordingly relative to executional elements like data capture and customer profile execution. Understand the decision process that the customer goes through prior to making their choice and making a purchase, and seek loyalty value propositions that can influence that choice before or while it’s being made, not just a reaction once it’s already made. Reactive value propositions only reward behaviour that already happened, which is counter to the aspirational notion of “loyalty”. While merchant loyalty programs by definition, as stated above, can only recognize and influence behaviour with an individual merchant, it is important that merchants recognize that’s an artificial construct relative to the customer’s view. Their spending lives encompass multiple categories and merchants, including competitors. It is therefore important that the loyalty value proposition at least recognize this dynamic, and aspire to become an integral part of the customer’s selection process, and ultimately drive the deeper relationship. Most importantly – merchants must clearly define their program objectives, design and execute their program accordingly, including how the program is measured and valued as an asset. “Loyalty” is a very broad concept, and is often misapplied. When considering a loyalty application, merchants must ensure that they define exactly what the term means in their business context as a first, critical, step.

Spotlight You think you have what it takes to start a business in a super-hot market? PCM takes a close look at some of the most innovative and promising startup companies in the payment industry.

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“IF THERE ARE OTHER MARKETS WE DISRUPT IT WILL BE BECAUSE OUR COMPETITORS DIDN’T LISTEN TO THE NEEDS OF THE RETAILERS ” Michael Rolph, Co-Founder and CRO at Yoyo Wallet

oyalty programs have grown exponentially beyond the borders of the airline industry. While the basic idea of any loyalty program has been to reward your best customers, managers continue to face challenges on how best to optimize these often expensive programs. We spoke with Yoyo Wallet, a company that combines payment and rewards in one seamless and personalised experience. PCM: How did Yoyo Wallet come to be and what is the main idea behind it? Michael: Myself and the co-founders are all from the Payments world, so we’ve seen a lot of big companies try and fail to make mobile payment relevant for mobile. We were inspired by what Starbucks was doing back in 2012 and it became clear what sort of role mobile can truly play. They were at a point where 10% of their customers used their mobile app to pay and get rewarded. We also looked at what Tesco has achieved with their club card, which is probably one of the most successful Loyalty programs in the world. It was successful because they identified who the customer was and it matched them to their basket data. We wanted to take these inspirations and improve on them. We decided to provide a better experience and democratize it for all retailers and by doing that, in turn we provide consumers with the mobile experience that they want. Payments through mobile isn’t solving anybody’s problems. It’s a cool thing to do and ultimately, yes, that is where technology is taking us, but it doesn’t actually add any value to retailers or consumers).

So, our focus was about adding that value by making mobile relevant to retail and democratizing the Club Card / Starbucks experience for all retailers. PCM: What is your business model at Yoyo Wallet? Michael: First of all, we recognize that for mobile to be truly adopted, the retailer has to be the one that sees a benefit because it’s the retailer that is going to be paying for the service that is provided by mobile. Essentially, what we really do is identify a customer, and when they transact through mobile, we match that customer to the basket data. We then charge a fee for that transaction that we enable. Fundamentally, Yoyo is the Loyalty Scheme Program Manager. Loyalty is specific to each retailer, so it is not a coalition. Yoyo is creating different program functionality for retailers. The retailers choose the loyalty program they want and we then effectively help them. Usually, they are the issuer of the loyalty program and we are the program manager and we provide a scheme mark for the benefit of the consumer. So, we charge a monthly subscription fee per outlet for the benefit of running a loyalty program on behalf of the retailer. Finally, because we are connecting the seller to the buyer via mobile experience in a way that hasn’t happened before, enabling new transactions to happen. For example, a retailer can run a marketing campaign to enable their customer to buy 20 coffees in advance. That itself (purchase in advance of consumption) is the ultimate form of loyalty. From a

startup spotlight

consumer’s perspective, I’ve given you (the retailer) my money before I’ve consumed a product you are going to provide me, so we charge an enhanced transaction fee for that. Another good example of an enhanced transaction fee would be preordering; the ability for me to order my coffee ahead. PCM: Essentially, you also have a payment system integrated in the app to enable transactions. Do you then also view yourself as a payment company? Michael: We’ve built our own rails, so Yoyo integrates to the Point of Sale as a button on the till, so Cash, Card, or Yoyo. Within those rails, the user has linked their transaction method to their Yoyo user account. Yoyo is then able to act as part of the transaction of automating somebody’s collection of loyalty and capturing basket data to issue a fully itemized digital receipt and we’re also able to automate the payment. Yoyo does not have to be the payment method. For example, the user can also use ApplePay, AndroidPay or SamsungPay and Yoyo is essentially the customer identification platform. We provide the token for customer identification as part of that transaction. In that case, payment is just an enabler, we treat it no different to how Uber does. It is an enabler for better experience. There are other people who want to be payment companies like Apple, Samsung and Google, but we do not want to be a payment company, we rather want to be an enabler of a better payment experience. PCM: Can you please walk us through a single customer experience / journey? Actually, there are two types of experience; there is the Yoyo app and the retailer app that is powered by Yoyo. The way to think about Yoyo just before going to the consumer experience is that we are a technology provider around the most rewarding transaction experience. From a retailer perspective, they can use features of our platform and have them power their own app. For instance, in the UK, we are working with Café Nero and Café Nero will launch a Café Nero app powered by Yoyo. Alternatively a retailer can just accept the Yoyo app. The user journey is very simple; I can create an account; I attach a funding method if I want to (Visa, MasterCard, Amex, etc.), I may choose not to in which case I would be only experiencing the loyalty through the app or even just a card. Once I’ve done that, Yoyo is then tokenizing my identity. When I transact, whether it’s for loyalty only or loyalty and payment, I’m not passing any personal or financial information as part of that transaction, I’m simply passing over a unique customer token,

which is only relevant for that 30 second window. It’s dynamic as it changes every 30 seconds, making it the most secure form of transaction out there. It’s a little bit like if you were to look at the 16 digits printed on your usual debit or credit card but every time you used the card the numbers changed. That is what we are doing with our customer identity—everything happens in the cloud. When you transact it is a little bit like Starbucks experience as you can scan a QR code. Equally if the Yoyo customer identity token has been linked to AndroidPay or ApplePay, Yoyo is passing that customer identity token through NFC via Android or Apple to the Point of Sale and this is where the magic happens. Whether it is because Yoyo enables it through the scan of a QR code or passed via the NFC of Apple or Android, once that token hits the Point of Sale, we can automate the payment experience as well as the loyalty experience. This allows us to recognize it’s person X at the Point of Sale, he’s making a transaction of 10 Euros, within these 10 Euros, the basket consist of two coffees and two croissants and those two coffees are part of a stamp cup program, so we need to immediately issue two stamps. We also recognize the retailers from the points program, so we need to issue 1.000 points. We also know that the person would want a receipt, so we would issue immediately a fully itemized receipt with no difference to what you would get if it was to be printed off. All of that would happen seamlessly and spontaneously. Following that, there would be a complete feedback transaction loop that would say “how was your experience today?” and as a consumer you can let the retailer know. Basically, there are many aspects of a transaction that are fragmented today and cause wrinkles in a customer’s daily experience at the Points of Sale. We are able to iron them out through a better mobile-first experience. Another example could be, because I get the same coffee everyday from the same store, using Yoyo I can pre-order it and use the feature we have “jump in line”. As part of that, Yoyo employs gamification traits, automatically collecting my loyalty points or stamps and automatically issuing a receipt. All I’m doing is picking up my product from the store and walking off, so it’s order and collect. PCM: How did it work out for retailers who signed up so far? Michael: For a retailer, it really is simple: they can take payments and it works just fine. They can run loyalty programs, whether its stamp, card or points. However, what does not exist is the ability to identify your customers, through their preferences, profile and behavior and that is what Yoyo does for a retailer.

startup Spotlight We help the retailer know who their customer is and we also enable the retailer to segment their customers, based on their profile preferences and behavior. We do that by providing insight through a product that we built specifically for a retailer called “Yoyo Engage”. Essentially, it is an insight dashboard but also a campaign manager and launcher similar to “Facebook Advertiser”. This enables retailers to create campaigns based on an outcome that they would like. For example, one of those outcomes could be: “I would like to get more sales of product X. To do that, I need to identify the customer segment which is most likely to take up that offer.” That’s where the engage platform comes in, because we can identify that customer segment which is most likely to buy product X. It could be because; they buy product X if you give them a discount; they buy product X at a discounted rate because they bought product Y; (and if they buy product Y, they’re more likely to buy product X, so you need let them know that product X is available) PCM: Where do you see Yoyo Wallet 5 years from now? Michael: We think globally about what we do but equally, we are an early stage company going into the 3rd year of our journey. We need to show that we own a market, so the UK has been our focus and it continues to be so because it is our domestic market. With that being said, the best form of an international expansion is to go where your customers take you and this is why the US is incredibly exciting for us because we have customers who want to take us there. The same goes for Singapore and it is the reason why we are live in Ireland and Luxembourg. There is nothing that would stop us expanding into other European markets. However, what we

won’t do is overstretch ourselves as we are very much focused on building a sustainable business that is going to be here for many years to come. In order for that to happen, we have to be smart with the resources we have since we have a really focused international expansion strategy. When thinking about the markets we are disrupting, it is the loyalty market which is completely wide open. Nobody has cracked it apart from some of the big retailers who have millions of Dollars, Pounds or Euros to spend on this. No one has yet democratized this for retail and we think we’ve got an open opportunity here to democratize true customer engagement through loyalty for the retailer on a global level. That’s the market we’re focused on and that’s the field where we can we add great value. We are here for the sole benefit of retailers. By putting the retailer first, you are putting the consumer at the heart of the experience because any retailer in their right mind would not do anything that doesn’t benefit their customers. We think that it is a global experience that 5 years from now will make Yoyo a truly ubiquitous loyalty program manager and scheme that enables the retailers to become the issuer of unique programs for their customers. PCM: Any exciting news/announcements you would like to share? Michael: We’d like to announce our UK-wide partnership with Caffè Nero. This partnership does represent a significant move onto the UK high street for Yoyo Wallet and will further solidify our position as the UK’s most used mobile wallet. Yoyo Wallet is already live in 50 per cent of UK universities and over 100 corporate locations. For more information about this partnership please click this link!

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