Insights on the evolution of loyalty programs and the increasing role for the payment industry

Friday 14 June 2024 09:38 CET | Editor: Oana Ifrim | Interview

Kirsten Hoornstra of PaymentGenes discusses the evolution of loyalty programs and the impact of embedded loyalty on customer engagement and merchant success.

Kirsten, can you please start by sharing some details about yourself, your professional background, and your industry focus? What passions drive you, both professionally and personally?

I started my career at Accenture and later joined a leading Dutch digital agency. A few years ago, I got into the vibrant world of payments and I’m happy to combine my experience in driving digital transformation and payments in my current role; leading the Merchant Services practice at PaymentGenes Consultancy, where I focus on Merchants, PSPs and Acquirers.  Co-creating innovative solutions with the ecosystem and developing growth strategies makes me very enthusiastic! The entrepreneurial freedom I get at PaymentGenes fits me perfectly, as I also enjoy a small venture in the wine business in my free time (and have a backlog of ideas that only gets longer…). 

What effect are economic pressures having on loyalty programs?

A key struggle for most loyalty programs is to effectively determine its ROI. In economic downturns, that makes them a prime suspect for budget cuts. On the consumer side, the relationship will become more transactional in nature. With rising prices, consumers seek ways to stretch their budgets and reduce spending, so they re-evaluate their program memberships. Transactional offers like cashbacks and discounts become valuable incentives for consumers to stick with a particular brand.

How have traditional loyalty programs evolved and progressed nowadays?

The traditional view of loyalty programs as a points-for-purchase strategy is increasingly seen as less effective. Did you know that customers only redeem 50% of their acquired points? Today's customers are seeking instant (and continuous) gratification and seamless experiences in their brand interactions. Loyalty programs have certainly progressed and more and more brands are diversifying their loyalty strategy (classic mobile apps, tiered reward schemes, etc.) but we also see more and more gamification and leveraging customised experiences through AI to boost customer engagement.  

How are consumers engaging with their favourite brands, and what rewards are most interesting to them?

Although personalisation has been around the block for years, you’ll be amazed how little this is implemented properly. It remains the key ingredient for customer engagement, who value personalised interactions and exclusive access to products and discounts. Furthermore, we see that as consumers engage more and more with their favourite brands primarily through social media, the rapid rise in social commerce as a logical result. Rewards should be personal as the context for perceiving value differs. You won’t blow away Gen Z with a saving program for a Disney ticket if you’re a drug store. Younger generations are picking brands that align with their social and environmental values. In today’s age where we’re in total stimulus overload, brands should integrate themselves with the lifestyle of the customer (starting to see the point for embedded loyalty?).  

How effective loyalty programs are important for merchants? What metrics or KPIs should merchants track to measure the success of their loyalty programs?

The classic KPI for measuring loyalty is the CLV (Customer Lifetime Value). You want your customer to keep coming back for more. When it comes to the program, opt-in/opt-out rates are relevant measures. For businesses relying on the points-for-purchase model, redemption rates are key (also for the company balance sheet). 

What are the challenges of successfully running loyalty programs?

As said, loyalty programs and the state of the economy have a hate/love relationship. Remaining agile and relevant in a fast-paced and competitive world are key. Another important challenge worth mentioning is the increasing regulatory impact. Imposing tighter constraints on data collection and usage, makes it increasingly difficult for companies to develop a 360 view of their customers (more reliance on 1st party data). A strong (modern) technical setup that caters for harmonisation of all data sources is the foundation of all successful loyalty programs. 

What is embedded loyalty, and what does it bring to the table?

Working in payments, we love adding the word embedded to create a buzz. In short, embedded loyalty is about making rewards programs more convenient, personalised, and engaging for both businesses and their customers. Embedded loyalty is about integrating rewards and incentives directly into the customer experience. So, this means no more separate cards, apps or hidden pools of unused points (that are designed to not be used) Embedded loyalty is about continuous gratification and forging loyalty through every interaction. 

Are there any challenges to consider when embedding loyalty?

In embedding loyalty, I strongly believe in the role that the payments capability should play. No matter how you slice & dice the goal of loyalty programs, in the end it all comes down to transactions and how to surprise & delight in the most engaging manner. Transactional data are a source of information, but the payment capability in itself has the power to facilitate different business models and completely transform the customer experience. For merchants, this means a mindset shift from payments as a cost centre to strategic capability. This comes with organisational (who is responsible?), technological (are my providers mature enough for this next step?) but potentially also regulatory impact (e.g. PCI-DSS compliance) that cannot be overlooked.

Can you provide some success stories of embedded loyalty programs?

Personally, I’m a big fan of Starbucks and Joe & the Juice, who I believe have taken the embedded loyalty concept to a next level. Rewarding before even ordering by leveraging prepaid cards creates a lock-in and seamless customer experience during the ordering process, just one example. Truly leveraging the power of payments has transformed Starbucks into a fintech with new revenue streams. Also, the impact on store operations should not be overlooked. In a completely different arena, we see automotive OEMs developing in-car payment solutions and building a stronger direct customer relationship through further integrations in their customer’s lifestyle. The opportunities are endless, which makes it an exciting field for merchants & the payments ecosystem to collectively explore. 

About Kirsten Hoornstra

Kirsten Hoornstra is leading the Merchant Services practice at PaymentGenes, where she focuses on merchants, PSPs and acquirers. In her role she is responsible for the successful execution of consulting projects. These include growth, go-to-market, cost and payment strategies, global vendor selections (PSPs, Acquirers, POPs, etc.) and end-to-end assessments of the payment capability of global merchants.

About PaymentGenes

PaymentGenes combines deep sector expertise with best-in-class management consulting to help our clients create value with payments innovations. Whether you are a fintech scale-up, incumbent bank or global merchant - we leverage our global payments expertise from across the payments value chain to strategise, design and implement your next generation payments solutions.


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Keywords: embeddedd loyalty, payments , merchants, brands
Categories: Banking & Fintech
Companies: PaymentGenes
Countries: World
This article is part of category

Banking & Fintech


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