Birmingham Alabama-based Regions Bank is the latest financial institution to make a defensive move in a rewards program in the face of the likely Federal Reserve limits on interchange fees (and the funding such fees provides rewards programs). Regions will no longer accept enrollment into its Relationship Rewards program, a progressive and comprehensive program for customer engagement that we classify as Total Relationship Banking. The good news is that the program itself continues for current members—they’ll be able to earn and redeem normally. The suspension of enrollments boils down to Regions taking a wait-and-see approach to the impact of the Durbin Amendment.
According to a Regions statement. “After reviewing pending rules from the Federal Reserve related to debit interchange, we have decided to suspend all new enrollments into the Regions Relationship Rewards program effective March 1 [2011]. We will continue to evaluate the impact of the Dodd-Frank Act as provisions are finalized and will make necessary changes to our business model with the interests of our customers and shareholders in mind.”
“There will be no changes for existing customers who are enrolled in the program,” Regions spokesperson Evelyn Smith told me. “We’ll make a final decision about the program once the Dodd-Frank interchange rule is finalized, and once we have clarity on what the new operating environment will be.”
Last year COLLOQUY reported on Regions Relationship Rewards, which was launched in summer of 2010 (interesting timing, considering that the Durbin Amendment discussion was in full swing at that point). It was open to all consumer-checking, private-banking and business-checking customers with an active Regions Visa CheckCard. It rewards customers for their business across the entire financial enterprise, including keeping money in their checking accounts; using online bill pay, direct deposit and the CheckCard; and other factors.
This move is particularly saddening because Relationship Rewards is precisely the type of program that COLLOQUY believes provides a defense against the impact of lower interchange fees, with the ability to secure customer retention and increase transactional activity, as Stephanie Cohen outlines in “The Half-Empty Glass” in our current issue. Instead, Relationship Rewards is at risk of becoming a victim of that impact.
My hope for Regions: Don’t let it happen. If the goal is to strike a better balance relative to any interchange cuts, why not just lower the amount rewarded for each debit transaction? The right overall strategy is in place, after all. That’s the point of Total Relationship Banking—aggregate earnings across the relationship. Debit rewards might decline, but they still accrue along with rewards earned on credit cards, demand deposit accounts, and the other elements of the total program.
We’re rooting for you, Relationship Rewards.
With the funding mechanism for rewards programs like Relationship Rewards all but dried up, it is an unwise financial and strategic decision to continue a program that pays everyone on a reactionary basis. Programs like Relationship Rewards did not need to be perfect when interchange was high. The program could pay everyone on an equal basis, even when the customer would have done the activity anyways. This relatively unsegmented approach did move the needle on engagement and transaction/balances for some, but paid all.
Rewards continue at Regions, however, with a much more strategically sound (and potentially more valuable) merchant based rewards program run by Cardlytics out of Atlanta. Instead of being funded by interchange, the program is funded by the same merchants hatstand to benefit from the Durbin Amendment.
Instead of reactionary points given to all households in the portfolio (even when activity would have occurred anyway), the new program provides offers on your online statement based on transactions you have done, behavior you have shown or demographics you posess. For instance, if you showed a tendency to use your debit card at Walmart, you may get an offer from Walmart, or may get a counter offer from Target. Since the merchant can segment their offers to a specific audience (they don’t see individual data), the offer can be richer and more geared to the customer’s needs.
Isn’t this what should be the foundation of a strong rewards program? Customized, segmented, personalized and timed to the specific needs and behavior of the customer?
Customers could earn rebates and offers in the hundreds of dollars quarterly? This level of reward could never be achieved with points since everyone was paid without regard to specific incremental activity.
I don’t work for Regions, but look into the new merchant funded program at Regions. I think it is a great example of a win-win for the bank and the customer.