Loyalty programs are still a novelty in core banking; too many banks don’t have one, and those that do often take a one-size-fits-all approach, offering reward options based on broad, simplistic segmentation that fails to account for the unique characteristics and behaviors of their diverse customer base.
But when done right, loyalty programs create real personal value, increasing customer satisfaction and driving behavior that boosts share of wallet, transaction frequency and overall spending. Banks that take a narrow approach to loyalty risk missing a significant opportunity for deeper engagement and growth.
A recent CORA Group survey conducted by the Harris Poll found that older, wealthier, college-educated white Americans are the most likely group to let loyalty options influence their card payment choices. The data shows that 64% of Boomers consider loyalty programs when selecting a credit card for payments, compared to 52% of Millennials and 40% of Gen Zers. Similarly, White Americans (60%) are significantly more influenced by loyalty factors than their Black (45%) and Hispanic (45%) counterparts. The trend continues among higher-income households, and education also plays a major role. Some 70% of college graduates factor in loyalty programs when making payment decisions, compared to just 37% of those with a high school diploma or less.
These discrepancies make it clear that bank loyalty programs resonate most with a specific demographic. However, this group represents only a portion of a bank’s customer base, and in some cases, not at all.
Why do these discrepancies exist?
It’s because many loyalty programs still rely on broad, simplistic segmentation, grouping consumers by product type, income, geography, and other general categories. Although this is a starting point, people are far more nuanced which means these programs often miss the mark. For example, how someone uses their credit card doesn’t fully define who they are, and who they are as a person doesn’t solely dictate how they use their card. People are a blend of both, shaped by a variety of factors. Moreover, many loyalty programs only offer standard cashback rewards, which tend to bring low interaction, high inertia and minimal relevance or differentiation.
To be effective, programs need to move beyond one-dimensional targeting and deliver personal value that reflects the complex characteristics of today’s consumers. Modern loyalty technologies can tap into the customer data that banks already have to identify unique behavior and preferences. By the time loyalty programs launch, banks already have at least one month of customer data, providing a valuable head start. As the data builds over time, tracking spending patterns, actions and redemptions, rewards should become increasingly personalized. Offering flexible and unique options like earning and burning points at preferred retailers and exclusive perks for local dining, entertainment, charitable contributions, wellness and travel will make customers feel seen and understood, boosting engagement.
Data from one of CORA Group’s large bank clients confirms that cards with unsatisfying redemption options struggle to stay competitive and often face high attrition rates. In 2024, the bank found that 14.1% of closed accounts had no reward redemptions in the year leading up to closure, spiking to 68.3% in one of the months, and suggesting a lack of engagement with the loyalty program.
Meaningful contact
Loyalty programs also provide banks with more opportunities to communicate with their customers. They offer a legitimate reason to contact customers, even when there’s no immediate opportunity to upsell or introduce new products. They also create inbound visits, giving customers a destination beyond just reviewing their account statement. With loyalty features like offers and points balance, customers would be more likely to regularly use the banking app to check their points balance and explore new offers. Over time, this increased engagement creates opportunities for banks to cross-sell additional products and services.
A loyalty program is ineffective if it only appeals to one demographic group within a bank’s customer base. To fully take advantage of the benefits of loyalty programs, banks must shift from a one-size-fits-all model and simplistic segmentation to a tailor approach that delivers real personal value to each customer. This will increase customer satisfaction, engagement and retention and deliver long-term growth for the institution.
Simon Nicoll is Chief Growth Officer at CORA Group.
