A Sea Change for Card-based Loyalty Strategies


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Whatever name you want to apply to it — the Dodd-Frank Act, the Wall Street Reform bill, or simply referencing the Durbin Amendment portion of the bill – Congress passed new, sweeping financial reform legislation last night by a vote of 237-192. Now the Senate must debate and vote on the bill.

This Act covers a lot of territory such as regulating derivative trading, FDIC bank bailout reforms and how much risk banks can take on before the Fed cracks down on them. The main reason that I am even writing about this legislation is one small but vitally important portion of that Act: the so-called Durbin Amendment. This portion of the legislation will require the Federal Reserve to regulate debit card interchange rates so that they are “reasonable and proportional.” It also could change certain practices such as honoring all cards equally by allowing merchants to give a discount to customers who pay by cash or check; additionally, merchants will be allowed to set minimum purchase amounts of up to $10 for credit cards.

Like any issue, there are two sides to how the Durbin amendment is viewed. Many merchants feel that such intervention on debit interchange fees is overdue. In fact, the National Retail Federation has been quite vocal about their support of the legislation.

But, the flipside of the debate revolves around the huge impact on the business model that card issuers depend upon to make debit and credit cards widely available and encourage their use. If this legislation is finally passed and becomes law, it is reasonable to assume that Federal Reserve could slash the interchange fees on debit cards. Then, the “slippery slope” argument gains full steam:

* Will issuers slash or discontinue rewards programs encouraging consumers to transact on their debit card?

* Will the government then turn its sights on regulating interchange fees on credit cards, too? And, what kind of snowball effect will that have on the ubiquitous rewards and rebate programs that credit card issuers promote?

* Will US card issuers follow the same lurching reactions as Australian card issuers did in 2003? After all, you’ll recall that when interchange limits were imposed in Australia, card issuers reduced the generosity of their reward programs by 23% and raised annual cardholder fees by as much as 77% (source: Todd J. Zywicki, George Mason University law professor, as noted in The Wall Street Journal).

I think we’ve reached the point that it may be irrelevant whether this particular bill finally becomes law or not.

For financial services companies – and the loyalty strategies they employ to encourage card usage and customer loyalty — a sea-change is coming. So, it is time to rethink the role and nature of loyalty programs in the financial services sector. Only a holistic review of your entire relationship with your best customers is going to provide inspiration for the kind of game-changing approach to loyalty that will be the new world order in the US financial services space.

Kelly Hlavinka
A partner of COLLOQUY, owned by LoyaltyOne, Kelly Hlavinka directs all publishing, education and research projects at COLLOQUY, where she draws on her broad experience as a loyalty strategy practitioner in developing articles, white papers and educational initiatives.


  1. Kelly, I couldn’t agree more with your conclusion that “Only a holistic review of your entire relationship with your best customers is going to provide inspiration for the kind of game-changing approach to loyalty that will be the new world order in the US financial services space.”

    I’d go a step further . . .in my experience, only programs based on the total value of customer relationships with ANY company, across all the products, services and activities that generate revenue for the company, lead to a game-changing approach to loyalty. Without that focus, loyalty and marketing programs in general will remain locked in the product-centric focus that has dominated marketing thinking since the advent of mass production and mass marketing. And the game-changing opportunity that is inherent in a customer-centric approach to marketing, loyalty and otherwise, will remain essentially untapped and unleveraged.

    I checked out the Regions Relationship reward website, and it’s a very nice step forward from single product loyalty programs, even from the integrated loyalty program offered by PNC bank.

    But it’s value structure indicates to me it’s not fully based on product profitability models, nor based on the differences in ROI on marketing spending that can come from incenting new behaviors versus rewarding existing, on-going behaviors. I have a concern that the value offered in return for behavior is very far out of the range that will is likely to have meaningful enough impact to actually change many behaviors. Which leads me to wonder if Regions has set up this program as it’s own “profit center”, and where the profit on the points program will become the over-riding metric for the operation, not the incremental relationship values generated via the program.

    I’ve been designing leading-edge “customer value management” programs for over 8 years. I’ve found that increasing the value of each individual customer relationship across the total enterprise, achieving near “optimum” levels of relationship value in a majority of relationships, and maintaining that value over time, is the ultimate measure of “loyalty”. Anything short of that is a proxy . . . as back in the “old days”, we used $/GRP’s as a proxy for the value of a media program.

    If the change in the law forces banks to consider total relationship value instead of product revenues as the key metric for their programs, then there might be one positive “unintended consequence” in those 2,300 pages of legislation after all!


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