How embedded banking is disrupting customer loyalty programmes

Kim Van Esbroeck from Vodeno discusses how embedded banking disrupts traditional strategies for lasting customer relationships.

For years, loyalty programmes have been a cornerstone for brands seeking to incentivise repeat engagements and build lasting relationships with their customers, while also providing valuable spending data, and offering insights into preferences and behaviours. However, traditional point-based schemes have remained largely unchanged since their inception. With competition fiercer than ever, many brands are looking to embedded banking to innovate their loyalty strategies.

According to a Nielsen survey, a significant 84% of consumers are more inclined to remain loyal to brands with loyalty programmes, while 66% admit that the allure of earning rewards significantly impacts their spending patterns. But the landscape has shifted. Research reveals that one in five UK consumers have abandoned brand loyalty due to higher costs, leading 56% to switch to another brand, while other reports show that 79% are no longer interested in simply earning points.

Against this backdrop, embedded banking has emerged as a compelling solution, removing friction from customer journeys with the integration of value-added financial products.

To learn more about the changing loyalty landscape, consumer preferences and how embedded banking is bolstering innovation, we commissioned independent research among more than 3,000 consumers in the UK, Belgium, and Germany. The results highlight how Embedded Finance is shaping customer satisfaction, and we predict loyalty will be the next major area of disruption, powered by embedded banking.

Today’s consumers demand seamless customer journeys, integrated with end-to-end digital financial solutions that make their checkout process quick and convenient. Around 48% of respondents have used a debit card directly from their favourite brand, while similar numbers have used credit cards (40%) and e-wallet payments like PayPal or Apple Pay (39%).

Our research reveals that a significant 37% of consumers are more likely to seek out brands that offer Buy Now, Pay Later (BNPL) and flexible payment options due to rising costs. In fact, 40% will remain loyal only to brands that provide financial benefits like BNPL and cashback, rising to 50% amongst those in the 25-35 age group – a sentiment which is likely to be a clear call to action for brands.

When it comes to loyalty programmes, just under half (46%) are more likely to use a brand’s loyalty card to make purchases if it includes BNPL. This figure was highest amongst the youngest consumers surveyed, increasing to 53% for those aged 16-24 and higher still (65%) in the 25-34 demographic.

Our research demonstrates that consumers not only see the value of embedded banking products, but it also translates to an uptick in repeat visits and customer spending.

Among respondents, 16% reported shopping with their favourite brands once every two or three weeks and 19% reported doing so monthly. However, among those who used Embedded Finance solutions, 36% now visit the brand's app or website three to five times a month, with this figure rising to 43% among the 25-34 age group.

Crucially, our findings reveal that customers are prepared to pay it forward when it comes to their loyalty. For instance, 22% say they are likely to make more purchases with brands offering embedded banking, while similar numbers are more inclined to recommend those brands to friends and family (23%) and spend more money with them over competitors.

Early Embedded Finance adopters are already realising the power of providing customers with tangible financial benefits. Target’s REDcard offers 5% cashback on purchases and is a stand-out example of embedded banking in action, contributing over USD 8.9 billion in volume annually and 12.1% of all Target sales. The Starbucks rewards platform, which allows customers to earn rewards and pre-order food and coffee with their smartphone, has also been immensely successful with more than USD 1 billion of funds stored within the platform – more than 85% of US banks have in assets.

Embedded banking has already innovated the customer journey and has the power to reshape loyalty programmes. Our research shows that consumers are clearly seeing the value in embedded banking products and are responding with bigger shopping baskets and more repeat visits. With its ability to make the consumer experience better, embedded banking not only enhances the digital pathway but is also helping to build stronger customer relationships in a fiercely competitive market.

This article was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2023, which is the latest comprehensive market overview and analysis focusing on the key products and players within the Embedded Finance and BaaS ecosystem.

About Kim Van Esbroeck

Kim is Country Head for Aion Bank Belgium and Chief Revenue Officer for Vodeno/Aion. Kim is responsible for growing Vodeno/Aion’s business through commercial activities and business development.

About Vodeno

Vodeno combines a fully API-based, cloud-native platform with services based on an ECB banking licence and a team of banking experts via Aion Bank. Together, Vodeno/Aion are uniquely positioned to offer comprehensive embedded financial services for banks, lenders, and merchants across multiple sectors.