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Loyalty programs to drive mobile payment growth

Application of rewards programs via digital wallet the killer app

Loyalty programs to drive mobile payment growth

Mobile proximity payments have to date proven lackluster. Despite hundreds of millions spent on developing these platforms, consumer take-up remains virtually nonexistent.

Gilles Ubaghs, senior analyst, Financial Services Technology at business intelligence firm Ovum, says: “While the reasons for this are many, the application of loyalty rewards and benefits via the digital wallet is now seen by many as potentially the killer app that will help to finally ignite the long simmering mobile proximity payment market.”

Ovum’s research highlights that 53% of consumers globally report they’ve either used or are interested in redeeming offers and coupons with their handsets, while 44% have used or are interested using their mobile device to pay for things in store and restaurants. Combined rewards and offers in conjunction with mobile payments are expected to be a common feature in the near term as a means to reach consumers and drive spending in new ways. Already today new services such as the mobile wallet just introduced by the Australian supermarket chain Coles, integrated with its Flybuys loyalty program, and mobile payment services from the likes of Starbucks, McDonalds, and others shows investment here is high and growing.

As highlighted in Ovum’s recent report, “Loyalty and Location Based Payment Services”, launching these services is easier said than done as the loyalty market itself continues to undergo a disruptive evolution just as powerful as that impacting the payments space. In particular the loyalty market is rapidly becoming inundated with offers and daily deals leading to a growing need for more personalized and targeted offers to consumers to help maintain engagement levels among an increasingly fickle audience.

Achieving this from a merchant or bank perspective requires developing extensive big data capabilities that extend beyond just traditional top-level basket transaction data, and must now include applying analytics on a range of consumer data down to location and stock keeping unit (SKU) specific data. This will require greater levels of cooperation between payment providers and merchants and represents a growing market opportunity for big-hitting third-party loyalty and analytics vendors such as Aimia, Oracle, IBM, as well as opportunities for emerging start up players.

Payment providers today already hold a rich seam of transaction data that can be and already is applied to loyalty programs. However, much of this data remains largely unstructured and the needs of modern loyalty programs remains largely ill-defined. Wallet providers who can crack this and create a broader payments loyalty ecosystem have the potential to both drive mobile wallet usage and create new consumer retail experiences beyond the point of sale, Ovum says.

John Ginovsky

John Ginovsky is a contributing editor of ABA Banking Journal and editor of the publication’s TechTopics e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each TechTopics issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and was managing editor and staff reporter for ABA’s Bankers News. Email him at jginovsky@sbpub.com.

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