Have you ever received a cashback reward in an app, or loaded money into a retailer’s app for future purchases? If so, you’ve interacted with a loyalty wallet. Loyalty wallets are financial products companies use to drive customer retention and streamline both in-person and online payments. Wallets are embedded into a company’s existing app experience and become a home base for customers’ cashback rewards and payment balances.
Most retailer loyalty wallets are referred to as stored-value wallets. These types of wallets hold prepaid balances for future purchases. Using embedded finance technology like Alviere enables companies to expand a wallet offering with a consumer account to accept funds via ACH, offer P2P wallet-holder transfers, and enable custom integrations to POS, CRM, or other existing systems. Creating more comprehensive functionality offers consumers more payment options, enhancing customer experiences beyond traditional stored-value wallets — while reducing payments cost and effort.
Wallet features can vary for each loyalty program and the intended business goals.
Cashback: Cashback, discounts, and promotional incentives are directly deposited into a consumer wallet, encouraging repeat visits to spend the wallet balance.
Pre-funded: Consumers add funds for their next purchase. These closed-loop wallets allow spending only at a specific merchant, without the ability to withdraw or use funds elsewhere. (This is the Starbucks model.) Cashback and discounts can also be added to the wallet.
Loyalty: Encompassing both cashback and pre-funded capabilities, a loyalty wallet can also include open-loop spending functionality including a debit card for everyday spending as well as remittance capabilities.
In this article, we’ll dive into the different types of loyalty wallets companies can offer their customers with embedded finance technology. Let's start with a quick overview of how wallets add value to both companies and their customers.
Benefits to consumer wallet holders
- View, manage, and apply cashback discounts at the point of purchase.
- Pre-fund for future purchases, often to gain additional rewards or discounts.
- Transfer funds to other wallet holders as gifts (P2P).
- Access to additional financial services offered by the company, including remittances. bill pay, attached open-loop debit card, or other options with a custom wallet.
Benefits to companies offering wallets to their customers
- Increase customer retention, mind-share, and top-of-wallet spending.
- Reduce payment transaction costs.
- Self-fund rewards programs using payment savings when consumers use the wallet as the preferred payment method.
Wallets can be configured with a variety of functional options to propel customer retention, cost reduction, or other strategic company initiatives.
Cashback Wallet
This wallet holds a customer's cashback rewards balance. With Cashback Wallets, companies issue a cashback discount for future purchases. Customers typically receive the cashback reward after they have reached a certain spending threshold, or accumulated a certain number of points. The value to the consumer for a Cashback Wallet is a simplified app experience where customers can easily manage their cashback rewards and see their current cashback balance, enticing the next purchase either in-store or online.
Traditionally, companies use various technologies to offer cashback via wallet, often complicated or with limited funding options. With embedded finance, companies can fund rewards just-in-time (JIT) to manage and optimize cash flow more effectively.
Loyalty Wallet
Loyalty Wallets have all the same features as Cashback Wallets, and add a key capability: Enabling customers to pre-fund their wallet for future purchases using various funding methods. The most notable example is the Starbucks app. Through pre-funding, customers have access to enhanced rewards, and Starbucks captures deposits for future purchases.
It’s important to note that the Starbucks example is a stored-value wallet, only fundable by pre-paying via card or payment app integration. Alviere Loyalty Wallets enable customers to fund their wallets using ACH methods including direct deposit, bank transfers, and other types of ACH-based payment methods, enabling companies to bypass card-based interchange costs. To learn more about the different funding methods available with Alviere Loyalty Wallets, click here.
Custom Wallets
Custom Wallets have all the same functionality as Loyalty Wallets, and can include additional financial services for open-loop money movement. Some companies choose to offer a debit card that enables wallet funds to be spent anywhere the card’s network provider is accepted, or offer global money transfer services like remittances.
It’s important to note that offering open-loop financial services comes with an elevated level of KYC information to comply with anti-money laundering and fraud monitoring requirements. Custom Wallets are normally developed for a specific customer need that expands beyond pure loyalty and provides a key financial service for a particular segment of customers. For example, retailers or quick service restaurants (QSRs) that serve populations that often remit money for friends and family. Offering this service via an existing loyalty app is a seamless experience for the consumer, and induces meaningful engagement for the business.
Loyalty Wallet use case: Quick Service Restaurants (QSRs)
Quick service restaurants (QSRs) have a unique opportunity to take advantage of the cost savings by offering wallets. On average, consumers spend $10-20 per visit.
Let’s take a look at how a wallet would impact cost savings and loyalty retention.
A large U.S.-based QSR chain wanted to drive more repeat visits by enhancing its existing loyalty program with loyalty wallets. Using loyalty wallets, customers pay ahead for their next few visits and reap the rewards right in the wallet. Customers see their wallet balance, reward tiers, exclusive offers, and upcoming promotions via the existing app.
The QSR started a summer “Lunch Bunch” marketing campaign that incentivized parents to open a wallet with their teenagers, using the P2P transfers feature to fund lunches during a specific time period. This increased wallet adoption and increased consumer deposit amounts.
Customers can load money using cards, and by bank transfer and direct deposit to take advantage of ACH rails. The QSR can provide an incentive — funded by network bypass savings — for customers to fund the wallet using alternative methods. The QSR created wallet holder-specific campaigns to push notifications, including incentives for pre-funding the wallets, and for using wallets as the payment method vs. cards.
Wallets: A natural extension for your loyalty program
This use case highlights how a wallet-enabled loyalty campaign can impact customer retention and cost savings at the point of sale. Considering the various wallet options provides a world of possibilities for more customer engagement, retention, and cost savings. If you’re interested in learning more about Alviere Wallets and how they contribute to your loyalty and payment initiatives, click here to contact us.
