On average, U.S. consumers belong to 16.6 loyalty programs, but actively use less than half of them. As we think about the key factors of loyalty program “stickiness," we naturally gravitate towards easy-to-understand rewards programs and easy-to-achieve discounts.
Continuously having to offer discounts as a foundational loyalty retention tool is challenging for consumer brands that operate on thin margins in highly competitive markets. What types of other offerings can make a differentiated impact on consumers while not putting more pressure on the bottom line? Loyalty wallets present a promising solution.
What are loyalty wallets?
At their core, loyalty wallets are secure accounts and payment methods that are embedded within an existing app, holding hold customer funds for future purchases. Wallets can be funded (or topped up) by customers, and brands can also push promotional offers, cashback rewards, refunds, and more into a customer’s wallet. As such, brands can use loyalty wallets as the home base for loyalty-related rewards and loyalty member payment options.
Learn about the different types of loyalty wallets, here.
What types of companies are best suited to use loyalty wallets?
Loyalty wallets can make a big impact on core business drivers through savings on payment fees, increasing app engagement, and opening up new channels of revenue. By nature of their customer app-based experience, loyalty wallets are best suited for consumer-facing retail brands with existing apps. Wallets are especially fit for quick service restaurants (QSRs) because of the savings on incremental low purchase amounts, and for grocery retailers' thin margin models.
Learn how loyalty wallets impact three core business drivers, here.
What are the key features of loyalty wallets?
1. ACH-based funding methods
Enabling customers to pre-fund multiple future purchases is powerful — it guarantees future sales and enables a brand to save on incremental payment fees.
Typically, stored value loyalty wallets have only offered one funding method: Cards. Using embedded finance technology, companies can offer their customers a wider variety of funding methods catering to consumer preferences and tap into a greater savings on payments processing.
With embedded finance, loyalty wallets can allow funding methods that utilize ACH rails and bypass network fees associated with card processing. Methods like direct deposit and bank transfer enable a retailer to acquire funds at a fraction of the cost associated with cards. Customers can also set up recurring deposits from other bank accounts, or directly from a paycheck through direct deposit.
2. Wallet holder P2P payments
P2P (peer-to-peer) payments features are a key driver of loyalty wallet adoption and usage. With P2P payments, wallet holders can send funds from one holder to another in real-time.
P2P payments create an opportunity for marketing teams to run unique loyalty engagement campaigns. Here is an example of how a quick service restaurant could use the P2P payments feature to drive engagement and sales.
Example: QSR uses P2P payments to drive summertime engagement
To drive more lunchtime sales, the QSR creates a campaign to engage both parents and their children through a summertime lunch discount.
Parents send money through the P2P feature in the app. The child gets a great lunch, and the parents get a discount applied to the wallet.
Through this promotion, the QSR can see an increase in wallet adoption (both parents and children download the app and open up a loyalty wallet), helping the QSR achieve the lunchtime summer sales goal.
3. Built-in cashback incentives
Rewards programs with complicated points systems can be a reason that customers lose steam with rewards participation. That’s why easy-to-deploy cashback incentives are a critical feature of loyalty wallets for both adoption and retention.
Cashback rewards can be used at multiple points in a wallet engagement cycle. A retailer can use the cashback feature as an incentive for customers to open up a wallet for their first purchase. For example, $5 for future purchases at sign up.
Cashback is also a compelling retention tool. Sending cashback promotions to wallet holders who have gone a certain time period without purchasing can be a strong tactic to get them back into a purchase cycle. Retailers can also use cashback offers to encourage certain behaviors like using an ACH-based funding method, or purchasing at a particular time of day, etc.
An example of a wallet adoption flow that is triggered when an app-based loyalty member makes a purchase. The user receives a notification that a cashback incentive is waiting for them upon opening the loyalty wallet, they can then fund the remaining balance, to make a purchase.
4. Flexible technology and integration capabilities
A common challenge that a large companies face when adopting a loyalty wallet is the need to integrate into existing payments and loyalty systems. Loyalty management systems, accounting and finance tools, ERP systems, POS systems, and/or CRM systems customized to their needs require flexible financial technology for the wallet to be launched and scaled.
Evaluating the underlying ledger that manages funds, the API documentation that will ultimately be integrated into apps and existing systems, the compliance, fraud, AML, and risk management components that ensure financial compliance are all factors that should be evaluated as a brand starts their exploration into loyalty wallet.
From the above, you can see how certain foundational features can maximize the value of a loyalty wallet for both your brand, and your customers. By implementing a loyalty wallet program that incorporates diverse funding options, fosters peer-to-peer interactions, incentivizes participation through cashback rewards, and integrates seamlessly with existing systems, retailers can position themselves for success in the ever-evolving retail landscape.
Ready to explore the potential of loyalty wallets at your company?
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