Four Reasons Why Free Loyalty Programs Fail for Financial Institutions

Companies like Buzzpoints, TruAccess (from MasterCard), Mogl, Edo, and BaZing (from StrategyCorp) all offer forms of free loyalty programs. These programs drive transactions with national merchants, and theoretically, your financial institution benefits by helping your users save money, and you earn interchange revenue.  It sounds logical, but here's what really happens.
Consumer adoption of these free programs is very low. In fact, adoption rates rarely get above 5%.  However, even though uptake is so low, the platforms and merchants still make money – and most financial institutions do not. How can that be?!
Well, it makes sense that the merchants make money. If 5% more people come into their stores and buy their goods at a small discount, the merchants are pleased, and they profit.
The “free” program providers make money because they get paid by the merchants, typically a small commission on each sale and/or an upfront “pay to play” fee. If the provider distributes these discounts through hundreds or thousands of financial institutions, then the total population of users is large enough that the provider makes money. But each individual financial institution gets left in the cold.
For example, if a provider distributes deals through 100 financial institutions with 5M total users, they might get 2% adoption, or 100,000 registered users. That’s great for them because it means 100,000 people are using the program.  But for an individual financial institution, if 2% of its 50,000 clients use the program, the end result is only 1,000 users – and that small number of users doesn’t do much to boost interchange revenue or wallet share.
As a result, FIs get very little benefit and their customers and members never get the savings that they were promised.
So why is adoption of these programs so low? Here are four reasons:
  1. Some of these loyalty programs require users to register their cards in advance. That's a huge hurdle that results in very low adoption. Not only are you asking users to stop what they're doing and pull out their cards to register them, you're also asking them to enter their card numbers into unknown and untrusted third-party platforms. Consumers don't like giving their card numbers away! So don't make them do it.
  1. Many loyalty programs require users to "activate" their discounts before they can use them. This means that users have to go into their online banking accounts and click the deals that they want to use before they actually use them. Isn’t that behavior the opposite from the usual consumer shopping habit?  How many of your users will start their online or offline shopping by visiting their checking or savings account? You guessed it - few if any. Don't expect your users to “change their behavior” in order to use your discounts. This is a recipe for failure.
  1. One final-yet-massive hindrance to usage of those free loyalty programs - there is nothing to remind users of their discounts. Most consumers do not keep track of all of their possible discounts at merchants around town (or online).  They participate in so many loyalty and rewards programs already – it’s just too overwhelming to remember to take advantage of all of those possible deals. For example, how many AAA discounts do you think you've missed because you simply didn't know you had one, or you forgot to pull out your AAA card? That's a rhetorical question; please don't answer it in the comments ;-)
  1. There is one more reason why free loyalty programs have such low adoption rates. A “free” program typically doesn’t get the FI’s marketing weight behind it that a strong loyalty and rewards platform needs. "Free" often carries odd psychological baggage that makes people think that it doesn’t require effort to make it successful, and there is nothing to lose if the program doesn't work. So when an FI decides to use a free program (as opposed to a fee-based program), very often there is scant attention paid to it and it withers on the vine.
The bottom line with free loyalty programs: Financial institutions get very little benefit, and their customers never see the savings that they were promised.

Is there an alternative to the free loyalty programs? Yes!

Banks and credit unions should look for loyalty programs that are easy for users, encourage card usage, drive local business, and actually save money for their clients.  Here’s what to expect with loyalty programs that work with and for your FI:
  • A beneficial loyalty program comes with modest set up and monthly fees based on your FI’s number of clients.
  • Providers of these programs will establish and manage relationships with merchants in your backyard. Some of these merchants could likely be your FI’s own business clients.
  • Make sure the program provider will work with your FI to develop a strategic marketing plan, create marketing collateral and tools (like landing pages, videos, emails), and execute the plan if your FI needs assistance.
  • Your clients will benefit from the program when they can easily take advantage of the deals (and your FI will benefit as a result). Look for a program that doesn’t make users keep track of their discounts, register their cards, or activate any deals.

Larky is a white-labeled mobile loyalty program that provides location-based discounts at the point of sale. When banks and credit unions use Larky, alerts are sent to their clients when they are physically near a participating merchant. Each alert is a free push notification with clear FI branding, and it provides simple redemption instructions to get the deal right there on the spot by paying with your FI's credit/debit card. The program also notifies your clients when they could benefit from one of your FI’s products – for example, your clients will receive your FI’s auto loan rates when they are at a car dealership.  

Financial institutions tell us that with Larky, they are delighting their clients with mobile discounts, building loyalty because they are touching their clients throughout their daily routines, and feeling the benefits of increased wallet share and interchange revenue. These are all benefits worth paying for and they all come with clear ROI.

To learn more about the benefits of an effective mobile loyalty program, download our white paper, Five Ways to Delight Customers and Drive Non-Interest Income.

Download for Credit Unions   Download for Banks

Larky is a mobile loyalty platform branded for your financial institution that drives retention, acquisition, wallet share, and interchange revenue. To learn more, visit or email us at or follow Larky on Facebook, Twitter, and LinkedIn.


Posted on January 26, 2015 by AndrewB - No Comments

Topics: Perks and Discounts, Loyalty