Saturday 30 January 2010

Is Barclaycard Freedom for merchants?

barclaycard freedom It’s been discussed and talked about in the industry for months – whispers and rumours about how it will work and a recruitment programme no one could have failed to have missed – and finally it has launched.

Welcome to Barclaycard Freedom.  A game changing credit card loyalty programme that is sure to shake up the industry.


On the surface this programme is different for a couple of reasons. 

Firstly, it is one of the only programmes in the UK to unite all stakeholders in the card value chain – the holy trinity of cards including the merchant, the acquirer and the issuer.  Utilising the Welcome Real-Time solution, this loyalty programme will execute at POS via Barclays Merchant Services, providing Barclaycard via the merchant the ability to communicate directly and in real-time with consumers.

barclaycardmoneyThe consumer will be able to see value earned, represented in cash during each purchase and will be given the option to utilise this cash to offset any future purchase .  Essentially providing earn and burn all at POS – in real time.

This inclusion of acquiring within the loyalty scheme is a real coup – allowing Barclaycard to not only promote the scheme to consumers but also to prospective merchants – providing an acquisition and retention solution in the highly competitive acquiring market.


The second differentiator for this programme is the fact that it is engaging smaller merchants.  Many card programmes include merchant partners or offers in one way or another, but these are normally large high street names and are increasingly for many programmes the same brands.

In contrast Barclaycard have apparently invited over 30,000 smaller merchants to take part and have stated that any card holder will have over 200 merchants participating within a 5 mile radius.  Although not explicitly stated in the press releases, it is understood that merchants will be able to run and fund their own promotions and campaigns, providing additional earning opportunities for card holders.

In this way it is for all intents and purposes a coalition programme.  For these smaller merchants this brings one of the main benefits of a shared earning model which is that the scheme can still be attractive to consumers and merchants even if no single merchant can provide enough value to be motivating on its own. 

This wide reach of merchants may however also be its Achilles heel.

With so many potential merchants on board, it may not be behaviour changing enough and simply reward customers for existing purchases.  There is no doubt that Barclaycard will still benefit from an increased share of wallet as customers centre transactions onto that single card, but the retailer may not actually get any additional spend.

Worse still the retailer may also see an increased cost to taking part as consumers move payments from cash/debit to more costly credit cards – and for smaller merchants these fees will be higher in comparison to the larger national brands.

There are also question marks over how well it will work from a loyalty marketing point of view.

In theory it would be possible to make one purchase and then immediately use the reward value from this on the next, allowing for very quick, but small redemptions.  There is research available however which indicates that where customers can earn and burn at relatively low levels that this can severely limit propensity to purchase ongoing – or essentially remain engaged in the programme.

Barclaycard will need to be very careful about how this scheme is “geared” to ensure there are relevant controls in place which encourage members to save and hence chase reward value. Only in this way will it also change behaviour.

The other issue is around the intangibility of the reward. Tesco Clubcard – recognised as a leading loyalty programme – issues paper vouchers via DM for a reason. They could easily integrate earn and burn at POS but choose to send the reward value out quarterly as this provides the highest engagement. Customers get to see an aggregated cash value almost as money in their hand – Tesco branded money – and there is no doubt in the customer’s mind that their activity with Tesco resulted in a tangible reward.

There is a risk with the Barclaycard programme however that a cash value which is earned and redeemed solely via POS will have lower engagement and be viewed more as a product right than a product benefit. Again, this perception may lower scheme engagement and impact the ability to change behaviour for both Barclaycard and the merchants taking part.

And this is where it all gets interesting…

This whole programme essentially hangs on merchant participation.  If it doesn’t ultimately work for them then it doesn’t work at all.

These concerns can be easily mitigated however through loyalty communications. This scheme will need huge awareness and I've no doubt there is an equally huge ATL budget to support this. However it is more than this, the scheme will need ongoing communications, both in store with participating merchants as well as personalised and relevant communications for card holders.

With so many merchants on board, getting cut through to the merchants which are relevant for each card holder will be one of the big challenges.

I certainly think it's an interesting proposition and it will be one to watch in 2010, both to see how many merchants get engaged in the scheme but also how well it actually works for them.


Anonymous said...

The slightly curious aspect of this is that the retailer is charged an extra 2% on top of the usual merchant charge and supposedly all that money goes into the pot for the customers (without administrative deductions) who only get 1% of the transaction.
I may be getting this wrong but it looks to me like Barclys are trying to increase their market share and using the retailers to pay for it. Surely not?

Anonymous said...

I knew that merchants were being asked to contribute but didn't realise it could be as much as 2% - however i'd also heard that return could be as much as 3% with bonus points so may have to wait and see. However the "money in the pot" may also be used to pay for customer comms - so in a sense it is going to customers, just not all in actual value. However at near 3% with merchant charges, there will be an expectation of real results from this programme for merchants.

Anonymous said...

Mark the 2% is I believe standard for all retailers. I run a very small business and pay over 2% merchant charges. So if someone makes a purchase without redeeming any points I will be be paying over 4% on that transaction. So perhaps I will suggest that they use Mastercard instead!
On the other hand if someone makes a purchase and uses their points there is no merchant charge on the part paid for by the points.
I haven't quite got my head around this as I don't see how there will be a volume increase in sales. This promotion will cost monay rather than make it I think. There has been no consultation and we are automatically opted in but we can opt out. I will see how it goes and report back!

Anonymous said...

Thanks for the feedback - it would be great to know how it works for you as it rolls out - feel free to drop me a line at - I'd love to do a follow up article later this year.