Finovate Blog

This guest post was written by David Brebner, a financial services product and program manager with more than 20 years’ experience in the United States, Europe and Australia. He is a principal consultant with Mindful Insights LLC.

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Financial Institutions are always in search of new, innovative products for their customers. But finding an idea that passes the business case test is no small feat. Ideas must enhance the customer experience, provide new revenue streams or cut costs, and play nicely with the standing IT strategy.

A well-crafted Merchant Funded Rewards (MFR) program may be one of the ideas that passes all the hurdles. For the FI, the right MFR program drives new, incremental, net income.

For the merchant (remember, the one ‘funding’ the rewards program), they have the potential to gain access to highly targeted customers for a pre-determined cost. Plus, by teaming with an FI, merchants can avoid devaluing their brand with widespread coupons or discounts. Instead, the offers are positioned as “rewards” giving a lift to the brands of both the FI and merchant. 
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Market size
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Working with vendors and FIs, we’ve locked onto some interesting stats including:

• Rewards can run to $100 to $200 annually per consumer, all funded by the merchant community
• An active base of over 250,000 retailers already integrated with one or more MFR providers
• More than $100 billion in transaction volume estimated by 2015
• 1 in 3 consumers participating turn into repeat customers for the merchant
• Average merchant transaction size increases by as much as 10%

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The rewards ecosystem
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We’ve crafted a view of the MFR ecosystem and the interactions among the players. This ecosystem makes a complicated delivery mechanism as simple as possible for FIs.

Rewards vendors offer a myriad of choices such as:

• The location of the stored transaction information (in-house or third-party managed)
• A choice of automatically enrolling customers or requiring an opt-in process
• A choice of presenting offers via the online banking channel or a rewards portal
• A wide range of analytics about purchase behavior that can be used for future programs

The FIs don’t have to go at this opportunity alone as the providers have worked to make their solutions feature-rich, while affording FIs the flexibility to deploy the solution to their unique needs.

There’s upside and value for the FI and its customers. There is a range of strong providers vying for the FI’s business. Now may be the time to review where your program is and get it moving.

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Note:
1. For more info, see our Feb. 2011 Online Banking Report, also authored by Mindful Insights.