3 reasons why CBA Pi pivots retail

Commonwealth Bank of Australia have just launched a video showing their new merchant payments solution called Pi.



This is truly interesting for a number of reasons:-

1.  As with previous innovators in this space such as Square, they are bringing together a number of different parts of the value chain within a single platform.  Watch out if you currently make money out of ePOS, stock control or loyalty!

2. They are creating a platform which is both open and closed - just like Apple.  It's open in that developers can build custom applications that add value (it's based on Android), but closed in the sense that CBA own it and will ultimately control it.  This is not something I've seen before from Square or PayPal.

3. The platform blurs the boundary between the user (the retailer) and the customer.  Any payment terminal allows interaction with the customer, but normally only in the sense of identifying themselves or possible picking their chosen payment type (check / credit account).  With Pi though the customer can truly interact, chosing for example how to pay amongst friends and I would assume select how they want to receive receipts.

The increasing use of tablets within the retail space is opening up more and more opportunities to create engaging customer interactions.  Unlike dedicated terminals or tills, with a tablet the scope is limited only by the imagination of the developers.  By CBA providing a platform like Pi that allows developers to create new functionality they benefit by having a constantly evolving merchant solution which they control.

CBA say on their website, "Pi is the future of business".  I'd argue it's also possibly the future of ePOS, e-receipts, acquiring, stock management, loyalty and anything else the merchant may think of or need.

Mutualistic Marketing - The Loyalty Cuckoo

As everyone knows, many Cuckoos will lay their eggs within the nests of other species.  This activity, known as brood parasitism, relieves the parent cuckoo from the investment of rearing young or building nests and so they have more time to spend foraging for food or producing offspring.  It also lets them mitigate risk by distributing their eggs amongst a number of different nests - taking the phrase "not having all your eggs in one basket" to it's literal conclusion.

The word parasite can seem quite negative but it literally means "one who eats at the table of another" and it is just one type of symbiotic relationship.  Another type of symbiotic relationship is known as Mutualism and this is where two organisms of different species interact in a relationship in which both parties derive benefit.

As with biology, where different species have evolved to benefit from and to other species, we are seeing a similar evolution within marketing.

Credit card loyalty marketing for example could be classed as a parasitic relationship as it essentially benefits from the merchant (the host) spend without providing it with any real benefit back.  However, this is changing with the advent of transaction driven marketing.  With companies like Cardlytics allowing merchants to interact directly with consumers through targeted offers that are based on card spend, they now stand to gain from this relationship, moving it from parasitic to more mutualistic.

This is not just about adding value back to merchants though.  It also begins to change the loyalty paradigm for many sectors, including loyalty providers.

As an example, consider a retailer looking to get closer to their customers.  Setting up and running a loyalty programme would be a costly endeavour and while there are many benefits to running their own scheme, at a basic level they may simply want to be able to identify customers (and prospects), based on their value so that they can communicate with them and encourage repeat purchase.

Traditionally, without a loyalty programme the only method to do this was advertising - getting a message out there far and wide in the hope it hits the right customers.

However, what if you can find someone who already knows your customers and your competitors customers - already knows how much they spend and how frequently.  You might want to strike up a relationship...

This is where mutualist marketing comes into play.  Working with payment providers like card issuers, retailers can create well designed acquisition and retention campaigns without running their own loyalty programme.  To use the cuckoo example, they can put their eggs in someones else's nest, albeit with their permission and for mutual benefit.

This isn't just limited to card issuers though.

Google provides a great example of an acquisition host, letting merchants and brands target their services based on google search resources in a mutually beneficial relationship.

What's really changing though is the number of hosts (vendors with data) and their ability to collect, retain and utilise behavioural information in the form of transactions and interactions.

Whether is location based checkins, TV viewing or sports/fitness tracking services, these are becoming increasingly sophisticated and more importantly utilised.  At the same time, they're providing additional ways for a brand to target the right behaviours without the expense/investment of a dedicated loyalty solution.

Pepsi for example has recently run a promotion that tied up with reward company Kiip to offer fitness "achievement rewards" when a user logs activities such as runs through fitness apps such as Nexercise and MapMyRun.  Rather than trying to get consumers to enter on-pack codes to interact with Pepsi, they have instead chosen to interact with the consumer at the point when they may actually want a Pepsi.

There has been talk about the divide that may be created between the data "haves and have nots" - in evolutionary terms, a data survival of the fittest.  However, like all things in evolution, it was never going to be that simple.  Just as symbiotic relationships form in nature to ensure species survive, the same is true for us.

The data "haves" are essentially leveraging their data for the "have nots", creating a mutualistic relationship which benefits both sides.

This means on the one hand your loyalty strategy should take account of all routes to your customer, not just the ones you can create - using other peoples "nests" may just let you focus on growing your business and distributing risk.  On the other, a strong loyalty programme may also prove a real data asset that you can leverage for greater synergies.

The question as to what your loyalty strategy should be has just gotten a little more complicated.

The end of the line for payment cards?

Payments cards are a legacy of the last century.

Their design was necessitated by a need to be able to communicate the identity of the holder and the provider/guarantor of the funds. This resulted in a physical card format, originally paper, more recently plastic which has since proliferated in our wallets as both payment choices and payment providers have ballooned.

Originally used in the 1920's, the first payment cards were issued by merchants with customers having a different card for each merchant. Seeing an opportunity to simplify payments for customers and possibly to create competitive advantage, several companies in the late 1930's started to accept each others cards. However it wasn't until the 1950's when Diners Club, Amex and Carte Blanche came about that the wider concept of a payment network was created.

Now customers could use a single card to pay for goods and services and since then the expansion of merchants accepting these has grown to cover almost every conceivable category and territory. Indeed, the latest contactless cards are finally opening up new sectors like transport or fast food which have been stubbornly cash based up until now.

Whilst this has made life simpler by removing the burden of physical cash, it is not however how people think about money.

The use of these plastic cards has forced us to channel our purchases through them as we attempt to manage our finances but ultimately our finances are more complicated and granular. This means we tend to carry more than one card - a debit card for every day small payments, a credit card for personal spend, a second credit card for business spend, an Amex...just in case.

Even with these different cards, they still don't align to our budgeting.

When we save for a holiday then the payment for that holiday comes from our savings (which may then have to be moved to our current account to then pay the credit card). When we incur business expenses, we have to pay for these through our personal account based on payments made by our company which are then paid to our credit card. We're constantly moving money around to make it work in a convenient way and we just accept it as normal. It's how things have always been done.

Then I saw BankSimple and saw what the future may actually hold.

There are a number of great ideas and innovations within the BankSimple interface, but in my opinion, one of the greatest is the ability to manage your money within goals.

Essentially these allow customers to decide what they actually want to use their money for (new car / holiday / home improvement / nest egg) and then can allocate funds automatically to this. BankSimple make decisions about how to invest this (long term/ short term) and the customer is always in control, able to change payments, end dates or simply pause the goal for a while.

This works because they are not forcing a customer to take out a new payment card or setup a new savings account to keep their money separate. Instead, BankSimple lets the customer worry about what they want to do with their money and they will work out the best way to manage this behind the scenes.

This jam-jarring prinicple is how people think about money. They decide on different goals/expenses and make allowances for these on a regular basis to try and manage their finances and keep within their "safe-to-spend" balance as BankSimple term it.

Where I think this could get more interesting is when you look at this combined with some of the recent announcements about mobile payments - from Google Wallet to Visa Peer to Peer. At present, all of these solutions have tended to look at linking in a payment card or bank account to make the solution work. The mobile wallet concept simply moves the payment card from a physical plastic device to a virtual one.

Indeed, Google Wallet allows you to simply swipe the screen to pick the right payment card before a single tap then allows you to pay, redeem a coupon and earn points. Launching Google Wallet they said:-

The launch reflects Google's efforts to simplify and redefine the shopping process for both consumers and businesses. [..] Because Google Wallet is a mobile app, it will do more than a regular wallet ever could

Whilst their desire was to redefine the wallet, instead all they've really done at this stage is substitute it.

Osama Bedier, VP of Google Payments is quoted as saying:-

Our goal is to make it possible for you to add all of your payment cards to Google Wallet, so you can say goodbye to even the biggest traditional wallets.

To me though, the bigger question is whether there is a need for payment cards at all?

In the BankSimple world where money doesn't visually reside within accounts and instead has more meaning attached to it based on goals and budgets, then you can imagine that these virtual wallets may be able to access funds in this more natural way.

• When I go shopping, I should be able to pay from my household budget
• When I pay for a holiday, I should be able to pay from my holiday savings
• When I pay for a car expense, I should be able to pay from the allocation for motoring expenses

Don't have enough money in my budget? Well then simply extend me a line of credit for that purchase in that budget.

This would immediately give me visibility that my car expenses are in the red, and I can choose to pay these down more quickly. Rather than an aggregated, monthly credit card statement with every expense stuffed into a single number, i'd have real visibility of my money as it relates to my life.

Technology like Google Wallet is fantastic and i'm genuinely excited about what it will offer in the short-term. However it's going to take some real visionary thinking like that shown by BankSimple to truly redefine our relationship with money.

When that happens I think the need for payment cards, as shaped by the last centuries requirements may actually become a thing of the past and mobile technology will redefine not only what we pay with, but how we manage that payment.

Is US DoJ Lawsuit actually a win for MasterCard & Visa

Credit card loyalty programmes took a potential dent last week when Visa and MasterCard settled a dispute with the US Justice Department. The dispute centred around the restrictions the card schemes placed on retailers about card acceptance and how they are able to promote or incentivise different payment methods.

To accept Visa or MasterCard, retailers have to essentially sign up to an "honor all cards" commitment. In principle this rule is a good thing as it means that wherever you see the card scheme logo, you can be assured your card will be accepted. The problem however is that increasingly not all cards are equal.

Card schemes typically charge merchants a fee for every transaction which ranges anywhere from 1-3%. This interchange fee is the cost of doing business if you want to take credit cards and as a retailer you cannot impose a surcharge to cover it. This basically means that whether I pay using cash, debit or credit card, I should pay the same price.

While for the consumer these restrictions sound fair, what really niggles merchants is the fact that these fees are increasing. Card schemes are free to set the interchange rates at whatever level they want and increasingly they are charging more for "premium cards" and "reward cards".

Again the principle behind this seems fair - if you want to access a better class of customer who has more disposable income, you need to pay a little more for the privilege. The problem though is that increasingly the bar is being lowered for a "premium" customer meaning merchants pay more fees across more customers and don't necessarily get more benefits.

The retailers argument is that as they cannot surcharge for these cards or refuse to accept them they are essentially held hostage to whatever the card schemes want to charge.

This has now changed though. While the retailer still has to accept all cards within a given scheme they sign up to, they can now incentivise customers to use other payment methods including cheaper credit cards. This could mean for example that a customer may be offered a 2% discount for using a cheaper credit card or debit card, making them decide at the POS whether they want 2% off now or pay 2% extra and earn reward points.

The value exchange and payment decision is suddenly going to get very complicated.

However, it's not all that bleak. The Visa and MasterCard settlement is actually quite clever and probably more of a win for them than a loss.

The first rule of the proposed settlement states:-

[Allow merchants to] offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment

This means that the offer at POS will have to be something like "2% discount for using debit card" rather than a "2% charge for using rewards credit card".

Given that consumers will have already seen the price of goods published and will have been mentally prepared to pay that price, this I suspect won't have such a great effect. In addition, the amount of rebate that can be offered is also very small on a per transaction basis - anyone who's enrolled in a card reward scheme knows that you have to spend thousands to get a small amount back. On a $50 transaction, any free gift worth around $1 isn't going to be worth having - I'll just have the points thanks.

While larger merchants can probably combine this with their own loyalty scheme, offering say double points for transactions using a different payment card, it is likely that highly loyal customers already have the merchants own payment card - so little traction here either.

For smaller merchants this is likely to work even less. They are in a constant battle for customers against the larger retail behemoths and so unless you're the only merchant for miles, setting payment hurdles higher is likely to just make footfall lower. Their only saving grace is the proposed rule:-

[Allow merchants to] communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment

This tugging on the heart strings for a small mom and pop store is likely to be more motivating than any discount on other payment mechanisms.

Also, don't expect consumers to win in this deal any time soon. Attorney General Eric Holder said:-

We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anti-competitive rules, we will accomplish that.

However, any potential savings that retailers make out of this won't be passed on to the consumer in lower prices, they will simply go into greater profits for the retailer. The experience in Australia when they halved interchange fees showed that basically consumers get less rewards on the cards, pay more in bank fees and end up still paying the same price. While this settlement is slightly different, it certainly won't result in savings for consumers. If anything it will move money from consumers pockets in the form of points and into retailers pockets in the form of increased profits.

There is though I think a happy medium here.

For many merchants, especially the smaller ones, they don't have the ability to recognise and reward customers in a meaningful way either due to purchase frequency or the running costs around a loyalty solution. What this judgment does do is provide a wake-up call for banks that they cannot keep retailers at arms length and expect them to just payout for a loyalty programme which is basically there to create stickiness to the bank - not the retailer.

I think now is the time for banks to embrace retailers and provide added value back to them in return for accepting their cards. Banks have a wealth of data and very sophisticated loyalty platforms. The opportunity to create a win-win here for banks and retailers is immense and if the judgment delivers this it will have been worth it.

After 25 years - Amex games card loyalty

Back in 1985 there was a revolution in computing which although small at the time went on to dominate our everyday lives - this revolution was Windows.

For many, Windows 3.1 was the first version that will be remembered and this was also the first version that could be extended to support TCP/IP - or essentially the internet. 

While it has been full-steam ahead for both Windows and the internet since this time, there has also been major change with the likes of Apple and Google increasingly innovating - whether this is new operating systems, new hardware or new ways of distributing applications.

There was however another revolution that started 25 years ago - credit card loyalty schemes.

In 1984 Diners Club launched "Club Rewards" which allowed card holders to earn frequent flyer miles or merchandise rewards based on card spend. This was closely followed by Sears who launched the Discover Card. Although quite revolutionary at the time as it had no annual fee, higher credit limits and most importantly for wider acceptance lower merchant fees, the big innovation was the inclusion of a cash-back rewards programme - giving card holders 2% of spend back.

What's interesting however is that while Windows 1.0 would be unrecognisable for many today, the Diners Club and Discover Card loyalty programmes they pioneered are pretty much the same used on all loyalty credit cards today.

In fact the latest programme from Chase called Ultimate Rewards has all of these features including a new one "Pay Yourself Back" which allows you to offset any qualifying spend on your statement with points - something which is essentially what Discover introduced 25 years ago - namely cash-back.

It was great then to see Amex breaking the mold and doing something different.

Their new scheme Social Currency has partnered with foursquare to allow card holders to check-in to retail stores to share purchases with friends.

Using a dedicated iPhone app, members can then share what they purchased, what they want to purchase and photo's of the event/product.

Keeping with the foursquare gameplay, members are rewarded for taking part with a selection of unique badges based on their behaviour such as the "Thrifty Spender" badge or the "Chinatown" badge.

I've discussed recently that loyalty is changing and that adding a gaming layer to loyalty programmes is one of the most important changes to loyalty in the last 25 years. It's great then to see an industry that once pioneered loyalty now embracing the next phase.

Amex may have been a little late to the party with it's original loyalty offering, "Membership Miles" back in 1991, but it's certainly at the forefront now. I wonder how many other banks will be brave enough to follow suit.

How to train your dragon (or customers)

Hiccup is a teenager who's a little different - he doesn't really fit in with the rest of his Viking village who are dragon slayers - and have been for centuries. Instead of slaying dragons, he ends up befriending one and in the process changing the perceptions of the whole village.

The dragon he befriends is the most powerful and feared Night Fury dragon, but due to an injury, he cannot fly without assistance from Hiccup. Becoming friends the two of them go on to work together - Hiccup the rider providing direction and the newly named Toothless the dragon providing power and support.

As the official blurb puts it for new film "How to train your dragon":-

Hiccups world is turned upside down when he encounters a dragon that challenges he and his fellow Vikings to see the world from an entirely different point of view.

Whether it changing from slaying dragons or changing your diet - change itself can be hard.

It is normally easier to do what you've always done. Sometimes you may think about change, dwell on it, work out the alternatives - but ultimately do nothing.

This is also the topic of a new booked called Switch: How to Change Things When Change is Hardby authors Chip and Dan Heath which discusses why change is difficult for us and techniques that help.

Unlike the film however where Hiccup is the rider of a dragon, the book describes how decision making for us is similar to a rider and an elephant, saying:-

Our emotional side is an Elephant and our rational side it's Rider. Perched atop the Elephant, the Rider holds the reins and seems to be the leader. But the Riders control is precarious because the Rider is so small relative to the Elephant. Anytime the six-ton Elephant and the Rider disagree about which direction to go, the Rider is going to lose. He's completely overmatched.

Whilst this is a great book for looking at how to manage personal change - and I highly recommend reading it - it does raise some interesting thoughts about how to make change easier for other people, providing three simple rules:-

1. Direct the Rider - Resistance to change is more often lack of clarity about what needs to be done


2. Motivate the Elephant - The Rider can't get his way by force for long - it's critical to engage peoples emotional side


3. Shape the Path - Normally a people problem is actually a situation problem - you may need to make changes to make change easier (think Nudge)

For example, they describe a case study in the book about a campaign to encourage healthy eating. Rather than use a standard message of "eat a healthier diet" or provide a long list of good and bad foods the campaign had a simple message - drink low fat milk.

Knowing that milk is the largest source of saturated fat in a typical Americans diet, it was felt that if they could change this to low-fat it could make a big difference.

To support this the campaign had two messages.

The first, directed to the Rider was simple and provided crystal clear direction - "Next time you're in the dairy aisle of the grocery store, reach for a jug of 1% milk instead of whole milk"

The second message was to the Elephant - looking to appeal to the emotional side by visualising the problem saying for example that a single glass of milk had the same fat as five strips of bacon.

The campaign worked in changing behaviour - resulting in a shift in market share for low fat milk from 18% before the campaign to 41% after it.

These same techniques apply in a commercial sense when looking to change consumers behaviour. For example, a credit card issuer is always looking to increase card usage - to make their card front of wallet and to increase it's usage across a customers share of wallet.

Whilst you could send a communication pointing out how using the card more will provide greater rewards - this is just too generic. The Rider - the rational side - will be contemplating various options - but not taking any action.

If instead to drive card usage you provide crystal clear direction - use your card in this category - then it suggests you are more likely to get people actually doing it.

A typical example of this would be to suggest using the card within supermarkets as for a card issuer, this represents both a large and regular transaction - something which is more likely to drive increased usage across other categories.

This can be seen in the example below from the new Amex Express Rewards card which highlights increased points earning in supermarkets:-

Amex have then combined this with simple messsages about the reward that can be obtained for the points earned - providing something to appeal to the Elephant - the emotional side.

However, this is nothing new and there are many campaigns of this nature across reward credit cards.

One thing that is missing from these types of campaigns though is the shaping of the path - in essence removing barriers which may still confuse the Rider or make them operate on autopilot.

For example, the problem with getting people to use their credit card in supermarkets may not be as simple as just asking.

• There may be concerns about what people think - Does using a credit card mean I can't afford to buy food?


• There may be concerns about managing personal finances - If I use my card for everyday spend, will I remember to pay it off; will I overspend?

In order to ask people to use their credit card in supermarkets, we may need to first address the reasons why they aren't, helping to alleviate concerns and Shaping the Path.

One thing is clear though, simply asking people to spend more on their card is probably never going to work in the same way that simply asking people to eat healthier rarely works.

If you want change - if you want to train your customers - then this new book suggests that you'll need to think about how you speak to the Rider, engage the Elephant and ultimately make it easier to do business with you by Shaping the Path.

Is the going good for Barclaycard Freedom?

The TV advertising has launched. The programme collateral has been dispatched. The biggest new loyalty programme launch in the UK for the last few years is out of the gates.

However, what are the chances of it making it over the first few hurdles and more importantly actually crossing the finishing line. This is most definitely not a one horse race and the verdict is still out on whether Freedom may be a good bet - and that's with the punters - the card holders.

Hurdle 1 - Earning Options

Within a loyalty scheme, the ability for engaging customers in the programme is a balance between the perceived value of the reward and the effort required to achieve this.

For Freedom it ticks one of these boxes well - it gives 1% back to card holders, positioning it at the high-end of standard card loyalty programmes (with most giving more like 0.5% back). However in order to get that 1%, you have to spend at Freedom merchants, and this can be hard given the current selection of partners.

For me personally, the majority of my high, regular spend is business expenses. This means I need hotel companies, train companies and airlines signed up to Freedom to make it worthwhile. Until then my current reward credit card gets the spend - and that all important front slot in the wallet.

Hurdle 2 - Coalition vs Card Loyalty

Freedom is a little schizophrenic. It's not quite a traditional card loyalty scheme - offering rewards on all spend on the card, regardless of merchant - and not quite a coalition scheme - offering rewards on all spend with the merchant, regardless of payment card.

In reality Freedom is trying to be both a coalition and card loyalty programme - building loyalty to the retailer as a coalition scheme would and loyalty to the card at the same time.

This is a tough call for consumers as it means not only do I have to think about retailer choice, but also payment choice. Most loyalty junkies have a favourite payment card (for me it's my Tesco Clubcard Credit Card) which they use everywhere to maximise points earning, and will then have other, secondary loyalty cards such as Nectar or Boots Advantage to collect points across retailers where applicable.

By limiting earning to only Barclays merchants who have signed up, they are limiting potential ongoing usage of the card across all merchants - this may naturally make it a secondary card for many people - a position Barclaycard can't afford it to take.

Hurdle 3 - Programme Sign-posting

With Freedom being basically a coalition programme, it requires the consumer to make a choice - ideally changing their regular merchant to one who takes part in Freedom.

Getting the consumer to change retailer is all well and good if you're the Freedom merchant - but how does the customer know about you?

The issue here is that on a programme like Nectar, it's easy to remember the relatively small number of big brands taking part. Sainsburys, BP, Homebase - these are all big brands who are nationwide. Freedom on the other hand has some big brands - but none who really fit into those habit forming categories. Also, whilst it's both ingenious and laudable to provide a loyalty scheme that works across smaller, grassroots merchants, this makes it harder to get cut through to the consumer.

For Freedom to work, small merchants are going to have to shout about it from the roof-tops - almost literally.

As an example, look at how PayPoint - a provider which enables bill payment at merchants - publicise themselves. They have signs physically displayed on the outside of the merchant and clearly displayed window decals.

This may be overkill for Barclaycard Freedom, but with 30,000 merchants invited to take part, the card holder is going to need some form of sign-posting to be able to identify them on the high-street. It's too late if I have to wait until I get to the payment terminal to see the Barclaycard logo.

This I think is the crux of the problem though - and possibly the genius - the removal of reliance on big brands.

For decades now we've been sold on brands - from branded retailers to branded goods, we use easily recognisable logos to help simplify an increasingly competitive and complex commercial environment.

The Freedom programme though would seem to be trying to get us to think differently - to ignore the brands and instead focus on the service.

For example, whilst they may not have a large supermarket brand in the programme - looking at "Grocery and General Goods" retailers in the programme local to me brings up a number of small, privately owned grocery retailers such as "Meadow Farm Shop & Tea Room" in the village of Flore - not Tesco I grant you, but then they aren't trying to be, they offer something completely different.

For me this is the point - Freedom itself is actually offering something completely different.

It's not trying to be Nectar - it actually turns the traditional coalition programme on its head with no category exclusivity.

It's not trying to be Tesco Clubcard - with one retailer trying to take an ever larger share of our purchases in ever larger stores.

Instead, it is offering choice - freedom you might say - as long as that choice is paid for on a Barclaycard.

Is Barclaycard Freedom for merchants?

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.

Maybe.

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.

The 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.

It takes two to Tango

One thing that really annoys me is how companies only allow the named customer to make account enquiries – from gas bills to credit cards, typically only the primary or named card holder can make enquiries, which seems ridiculous when the caller is quite obviously a spouse. I know from personal experience the frustration this brings when my wife is trying to organise things and has to rely on me to make a phone call… normally 5 days later than agreed!

This may be fine for utility and finance companies that are not known for their levels of customer service, but within loyalty programmes this really is unacceptable as more often than not the spouse can be a major force within loyalty programme decisions.

Recent research from TNS showed that UK housewives spend 47% of their leisure time online – one of the highest percentages across the 16 countries surveyed. Now that might seem like a lot of time in comparison to other groups but you can bet that those housewives are doing more than just "surfing" – they are probably doing the weekly shop, managing the household finances, researching household purchases, buying gifts and quite possibly managing their partners loyalty accounts.

Within many schemes, despite not being the primary user of the scheme the partner does take an interest in the rewards. In some schemes such as frequent flyer programmes, it has been known for points to be contested during relationship breakdowns due to their high perceived value. On a day to day basis, for many of the schemes I've been involved with it is the partners who call the service centre to try and make balance enquiries or reward redemptions – and quite often find the response being that the primary card holder must call back.

This really is a missed opportunity and in many cases may be value destroying.

Within B2B marketing it is recognised that buying decisions are very rarely a one person activity and instead they are made up of a number of stakeholders. Names have been given to these different players within the process such as Users, Influencers, Deciders and Gate Keepers and there are strategies for addressing each role. Within B2C though it is sometimes overlooked that many consumers are also part of a larger unit, the family, and that decisions are very rarely taken in isolation. Obviously a decision about which airline someone may take for a business trip wouldn't be a family decision, but how the subsequent points will be spent probably will – the destination, the date, the additional spend – all of these will be subject to a larger discussion.

Marketers working in the kids sector understand this principle. As Dr James U. McNeal pointed out in his book "Children as Consumers: Insights and Implications", the big power of children was not just within the limited purchasing power they had, but rather in the influence they had over family purchases – or as its typically termed now – pester power. Marketers needed to create demand within the child for a product whilst separately communicating to the adults about the relevant benefits, pricing and availability – two separate communications messages – one communication strategy.

These disciplines should also be applied within loyalty marketing.

Understanding that the partner may have more time to review rewards and benefits and more desire for certain types of product can help to create that "pester" power or "Nag" factors that ensures the primary member stays firmly within the programme and maximises their earning potential. These spouses are also probably more likely to expound the benefits of the scheme to friends both online and offline so providing greater word of mouth potential.

Credit card companies cottoned on to this very early on and there is generally always a space on the application form for including an additional card holder – the card company knowing that this will lead to increased card spend. Loyalty programmes on the other hand normally just assume that its one account one person with no encouragement or messaging for additional account holders – this needs to change.

Loyalty schemes should actively encourage partners to register as joint participants and the scheme should understand their preferences and provide the primary participant with the ability to grant permission for them to manage the account. Even where schemes do support additional account holders, this is usually documented in the small print rather than highlighted as a programme benefit and positively encouraged.

It's also worth noting that these additional partners will have different needs and desires and so communications shouldn't use a one size fits all approach. Some more forward looking schemes have actively sent a glossy DM rewards booklets to the home address knowing that these will in all likelihood be opened and perused by the partner or spouse; if you're asking questions about preferences you also cannot assume that these apply to the household – whilst the husband may like short breaks and golfing holidays the wife may like lakes and mountains - as ever there would be compromise but if you're hoping to engage both partners you'll need to understand separately what they are looking for.

Involving partners/spouses directly within a loyalty programme can have real benefits and I think it's high time that loyalty programme operators liberated their schemes and maximised the potential that they can offer.

Short term gain or long term relationship?

Abbey have recently launched a credit card providing 3% cash back for 6 months on card spend for groceries and petrol. The press release around this stated "The increasing cost of living, combined with the credit crunch, means families need all the help they can get to cover the cost of their weekly shopping essentials - which is why we developed this cash back card".

This card is interesting on a couple of fronts.

Firstly it is blatantly targeting everyday transactions – the holy grail of card spend. If a card issuer can get a card to be used in habit forming sectors such as supermarket and petrol, then it's more likely to be front of wallet for other purchases. All card issuers encourage this activity, but it's normally more subtle as part of a statement communication or targeted marketing. This is one of the first such cards to be rewarding just this form of spend and is being done at a time when consumers are much more aware of their spend within these categories due to rising food and fuel costs.

By excluding other categories such as travel and expenses, the proposition rules out many customers in the traditional cash back segment of travel and entertainment who use their card to pay for business expenses. This card is squarely aimed at families who would normally pay for groceries and fuel by other means such as cash and debit – a previously overlooked segment within cash back loyalty.

What is a little worrying however is the promotion.

Anyone working within the card industry will know that 3% cash back is not a proposition that can be supported within the normal economics of a credit card. All merchants pay a card issuer for spend taken on a credit card, but this is no where near 3%. For Abbey to fund this offer of 3% its either in for the long haul and is hoping to make back its investment through a long term relationship with the customer, or it is hoping to make back its investment in the shorter term through a large number of customers revolving a balance on the card, paying interest and hence offsetting the costs of 3% being paid to a smaller number of transactors – customers paying off in full every month.

I wouldn't like to suggest which business case is driving this proposition. However, in a mature market with customers an increasingly scarce resource, the best route to healthy, long term profits is through healthy long term customer relationships. A loyalty proposition which encourages the right behaviours for the card issuer, the merchant and the customer provides a long term win-win for all stakeholders.

I sincerely hope the new Abbey cash back card is such a product – with customers at the heart of the proposition and a continued focus on meeting their needs so as to reap the rewards of a long term relationship.

Customer loyalty or inertia - two sides of the same coin?

In reviewing some recent credit card customer qualitative research it was suggested that the customers didn’t have emotional loyalty with their card and that instead any loyalty they did have was more akin to inertia than actual loyalty. Their hypothesis was that all credit cards offer the same “service” – i.e. payments, and so a customer remains with a credit card whilst the benefits they receive outweigh the effort it takes to change issuer.

As one of my main areas of expertise is card based loyalty this struck me as quite an interesting thought. Is all the work we do to retain customers and engender loyalty simply a way of tipping the balance of inertia so its not worth the customer making the effort to change rather than loyalty being a means of building deeper engagement.

I agree that building any type of engagement with a product such as a credit card is hard. At a basic level all credit cards do the same job. There may be subtle differences with some cards such as Amex and the perception people have with acceptance, but basically gone are the days where the card network or even the issuer mattered that much.

However, if loyalty efforts within a credit card product were really just a way of entangling the customer a little more to prevent them from churning, that doesn’t explain the real benefit that we see in terms of card usage. There is no denying that when loyalty is put onto a credit card product we see increased card usage. A Visa payment study in 2006 showed that share of wallet for credit cards increased from just 8% for non-reward cards to 36% for reward card holders. Research from First Annapolis showed a similar trend for debit card reward programmes with activation rates 15% higher and spend per card as much as 40% higher.

This is not to suggest that reward programmes create deep engagement with a card product or in fact that people actually have real engagement with their credit card. What they can do however is create engagement with the reward programme itself – causing customers to want to consolidate their spend to maximise their reward opportunities and the rules for doing this are the same whether we’re creating loyalty for credit cards or loyalty to a carbonated soft drink.