In a survey last year, Forrester Research found the "iPhone" effect encroaching into loyalty cards. Just as users of Apple's popular all-in-one smartphone could quit carrying around iPods and laptops, North American cardholders began to express frustration with carrying a wallet full of various reward and shopper cards—most limited to particular products and/or retailers.

Forrester's survey found that a majority of these respondents—57 percent in the U.S., 71 percent in Canada—felt they should have a single loyalty rewards card, with their choice of multiple retailers for rewards redemption and higher points accumulation.

To be fair, banks and card firms have paid attention. National City has its "Points" relationship rewards card features; Citibank's "Thank You" rewards program encompasses Citi cards as well as accounts with Citi or Smith Barney; JP Morgan Chase has expanded rewards to cover cards, IRAs, loans and even home equity lines. Each has a multitude of available merchant-funded online shopping malls for customers to further pile up or spend their points.

Analysts say these merchant-funded rewards will be among the fastest-growing areas for bank-based loyalty programs, aided not only by consumers' need for variety but the healthy subsidies these retailers bring to the table.

Mall Networks, the Lexington, MA-based rewards management vendor behind Chase's rewards channels, recently launched a new version of its platform that extends the choices for consumers with searchable and comparison shopping tools. It also extended bonus rewards to in-store as well as online shopping usage, which could make a rewards relationship all the more encompassing and, in turn, make customers all the more linked via the rewards portal.

"From a program standpoint, the richness of the capability and optimization you get from the experience means the conversion of people who participate in loyalty shopping…will go up," says Marc Caltabiano, vp of marketing for Mall Networks. The new Mall Networks platform will have configurable segments or brand sites that deliver different user experiences for particular customer sets. According to Mall Networks, each will be based on elements such as brand, portfolio, product ownership, demographics, or any rules-driven segment or customer target goal. Caltabiano confirms that the expanded platform featuring 20 million products through a merchant network of more than 500 online and offline merchants will be taken up by Chase and another undisclosed top 10 U.S. retail bank. Members of Mall Networks' merchant network offer up to 25 percent rebates for the referrals.

Lisa Bradner, a senior analyst with Forrester Research, says the strength of a rewards model like that of Mall Networks is, not surprisingly, the reach of the retail network. The offline aspect is still critical. "The in-store experience is still the gold standard for how people feel about shopping," she says. "Even for people who shop online, 73 percent prefer retail."

Reward programs are utilized by at least 85 percent of U.S. households, but they largely remain the domain of credit card issuers rewarding consumers with airlines miles, car/hotel discounts or cash-back offers. Mall Networks was launched in 2005 by CEO David Andre, a former CTO with Upromise, a grocery and "529" college funding plan rewards platform. Upromise and Mall Networks not only link to merchants but also manage services to cull data on what rewards will likely goose product or account activity.

In its fiscal year ending in March, Mall Networks reported 16 new clients on its roster, including Verizon and Spirit Airlines plus an expansion of its merchant roster to 600 online stores and 200-plus in-store and catalogue retailers. Still, Mall Networks considers its main growth engine will be in financial services over the next few years, according to Caltabiano. It's also recruited key executive talent with backgrounds in rewards programs at the former MBNA, HSBC and American Express. "They all have experience in running multi-channel programs," says Caltabiano.

For all the momentum gathering behind relationship and merchant-funded rewards, they still have to prove to banks that they do offer stickiness. "Loyalty programs by definition do not create 'loyalty,'" cautions Bradner. "What they can do is encourage marginal purchase decisions—which card to pull out of the wallet."

According to a 2007 report from Aite Group, over 2.5 percent of credit and debit card transactions by 2010 will occur as part of merchant-funded reward programs for FIs, up from just under one percent two years ago. (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved

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