As cashback rewards and points systems become steadily less appealing to cardholders, merchant-funded rewards (MFRs) offer a fresh way to keep customers interested. How do merchant incentive programs work, and what makes them more effective than points systems? Hydrogen provides a brief explanation as to how merchant incentive programs can benefit your business.
What Are Merchant Incentive Programs?
You’re familiar with the typical rewards programs that encourage users to buy with offers like cashback and points values. Typically, the cardholder pays for these points with money spent and interest rates. Plus, it often takes a significant amount of spending for these points to accumulate.
Merchant-funded rewards programs take an alternative approach to cardholder incentives. In MFR, financial institutions form a professional relationship with merchants. These merchants provide discounts, points, or rewards for their services in exchange for brand visibility and marketing through the financial institution.
This mutually beneficial relationship allows banks and vendors to increase rewards offerings to their cardholders without driving up interest rates. As vendors expand their merchant network, they can offer personalized rewards based on cardholders’ spending. If a customer frequents McDonald’s and they’re in-network, the vendor can offer a discount on the next purchase.
While MFR can cover national merchants, it can also include regional and local companies, allowing financial institutes to gain more credibility in a community. Effective MFR programs may have ongoing relationships between merchants and vendors, enabling long-term business optimization for both parties.
The Benefits of Merchant-Funded Rewards Cards
Setting up merchant-funded offer cards can offer many benefits for financial institutions and merchants alike. Advantages include:
- Money saved: If you’re looking to introduce more rewards for cardholders, MFR makes it possible without using high-interest rates for a low return. Lower interest rates with more attractive incentives draw customers in.
- Customer loyalty: People come for the low-interest rates and stay for the rewards. Merchant-funded rewards cards offer more immediate gratification than points or cash-back systems. They inspire customers to stick around for the next new deal, from free drinks at Starbucks to a coupon for Old Navy.
- Competitive edge: With ongoing merchant relationships, you can provide personalized rewards that people want to use. Only some financial institutes offer that flexibility in the industry. When making comparisons between cards, customers choose the one that represents their interests.
- Analytics: Financial institutions have a clear advantage over other businesses because they see people’s spending habits. That information displays demographics of who’s interested in which fast-food chain or clothing store. Merchants love demographics, and they’re willing to stick around for anyone who can feed them valuable information. As you give them analytics, you form a strong relationship with your merchants, allowing you to offer even better rewards.
Innovate Your Rewards Program With Hydrogen
At Hydrogen, our platform makes it possible to build hundreds of digital financing solutions in one place. Bring your institution to the forefront of innovation and compete with other businesses in the industry. Request access today for additional information about how Hydrogen can help.