How Loyalty Program Can Drive Growth in FinTech?

The fintech industry has been one of the most innovative and fast-growing sectors. According to Cognitive Market Research, the global fintech market size will be USD 251,421.2 million in 2024 and will expand at a compound annual growth rate (CAGR) of 19.20% from 2024 to 2031. This entices more businesses to expand into the fintech loyalty program sector, leading to increased competition. This is where a loyalty program can make a huge difference in business growth. An effective finance loyalty program can help businesses achieve the following:

• Boosted transactional volume: Encourage more frequent and higher-value transactions through reward incentives, driving growth in your financial services.

• Enhanced user engagement with financial products: Increase interaction with diverse financial products, such as investments and loans, by offering tailored rewards.

• Optimized financial behavior: Promote healthier financial habits, like regular savings or responsible credit use, through targeted reward programs.

• Increased cross-selling opportunities: Use the loyalty program to promote additional financial services and products, enhancing overall customer value and engagement.

The Loyalty Dilemma in FinTech

Being a relatively new sector, the global fintech industry faces some unique challenges. But the good news is it can overcome the challenges by leveraging well-designed loyalty programs. We’ve listed four major challenges faced by the fintech industry and the ways loyalty programs can offset them.

1. High Customer Acquisition Costs (CAC)

The average customer acquisition cost (CAC) is one of the highest in the fintech sector. A study that analyzed the average B2B CAC of 22 sectors found that the fintech sector had the highest CAC of USD 1,450.

Various studies have found that the cost of acquiring a new customer is five to seven times more expensive than retaining an existing customer. Well-designed loyalty programs will not only enable fintech companies to attract new customers but also help them retain existing ones.

2. High Customer Churn Rate

The fintech sector, being an extremely competitive space, has a high customer attrition rate as well. A study published in The Economic Times found that almost three-quarters of new Fintech app users churn within seven days. The customer churn rate is also a useful metric to determine customer loyalty. A high churn rate is a sign of low retention.

That’s where fintech loyalty programs can help. By designing and running high-quality rewards programs, fintech companies can engage and retain more customers. That will automatically reduce their customer churn rate.

3. Rise in Cyber-Attacks, Security Breaches, And Loyalty Fraud 

The fintech sector is more vulnerable to cyberattacks, data security breaches, as well as loyalty fraud than many other sectors. As per a report by GlobeNewswire, payment fraud attacks against fintech companies increased by 70% in 2021. Another report by Arkose Labs revealed that three fourth of total attacks on fintech companies were targeted at customer logins.

In such a scenario, fintech companies must invest in technologies that not only thwart cyberattacks and security breaches but also loyalty fraud. Some loyalty providers specialize in fraud-proof technologies and use highly advanced platforms to prevent loyalty fraud.

4. Lack of Tech Expertise

In the ever-changing world of finance, fintech companies must keep abreast with the latest trends and tech innovations in the domain. But some companies don’t have the right tech expertise to leverage emerging technologies to gain a competitive advantage. For example, at a time when a few leading fintech companies are leveraging AI and machine learning in their loyalty programs, many others are left behind.

In such a scenario, fintech companies should partner with the right tech solutions and loyalty software providers to have advanced loyalty programs in place. But when it comes to joining hands with the right service provider, fintech companies need to do their research and compare the features and prices of various service providers before making any buying decisions.

Types of rewards that work in the industry

Loyalty programs in the FinTech industry can include the following rewards, all of which are aimed at encouraging customer engagement and loyalty through their financial activities:

• Cashback: A direct percentage of money returned to the customer based on their spending.

• Points-based: Earning points for every transaction which can be redeemed for various rewards like merchandise, travel, or even cash back.

• Tiered rewards: Different reward levels based on spending volume, offering increasingly better benefits as customers progress through tiers.

• Exclusive experiences: Access to special events, personalized financial consultations, or priority customer service.

• Waived fees: Removing certain transaction fees for loyal customers.

• Partner discounts: Access to special deals with other businesses through the loyalty program.

• Bonus interest rates: Higher interest rates on savings accounts for loyal customers.

• Early access to features: Being able to use new financial products or services before everyone else.

Blueprint for an Effective FinTech Loyalty Program 

1. Define Clear Objectives
   Clearly outline the goals of your loyalty and gamification strategies. Whether it’s increasing user engagement, boosting transaction frequency, or expanding your user base, having defined objectives will guide your implementation. A well-structured vision helps in setting success metrics and choosing the right approach.

2. Understand Your Audience
   Tailor your loyalty and gamification strategies to your target audience. Consider factors like age, financial goals, and user preferences to create a personalized and engaging experience. Younger audiences, for example, expect interactive and rewarding financial interactions, while other segments may prioritize practical incentives like cashback or financial insights.

3. Choose the Right Rewards
   Design a reward system that resonates with your users’ interests. This could include cashback offers, exclusive discounts, or non-monetary rewards like badges or status upgrades. The key is to create a sense of achievement and value that aligns with user expectations.

4. Integrate Gamified Elements
   Identify touchpoints within your platform where gamification can enhance engagement. This could involve setting up challenges, creating leaderboards, or introducing levels users can unlock as they engage more. If gamification is a core element of your platform, the integration will be more seamless. However, adding it to an existing product requires careful planning and flexibility.

5. Utilize Behavioral Economics
   Leverage behavioral economics principles to encourage desired behaviors. Strategies like scarcity and urgency can drive timely transactions, while social proof can highlight the benefits of engaging with your platform. Psychological nudges can significantly enhance user participation.

6. Invest in a Seamless User Experience
   Ensure that gamification elements enhance rather than complicate the overall user experience. The integration should be smooth, making rewards and achievements feel natural rather than distracting from essential functions like payments or transactions.

7. Analytics and Iteration
   Implement robust analytics to track user interactions and measure the effectiveness of your loyalty and gamification strategies. Use data-driven insights to refine and optimize your approach continuously. A well-monitored program evolves based on user behavior and engagement trends.

Examples of successful loyalty programs

Here are some successful Fintech reward programs that have proven that loyalty programs can increase customer engagement and drive economic growth for companies:

1. India1 – The  White Label ATM operator implemented India 1 Digital, a customized loyalty program with the help of LoyaltyXpert to promote the use of ATMs in the country’s most remote areas. The idea was to provide rewards and cash back on every transaction made cash or cashless. The program is now fully automated and has users of more than 5M all over the country. Having an easy and accessible app for users in their native languages helped in increasing adoption rates. The rewards incentivized the rural customers to increase engagement with India1 and eventually contributed to customer retention for the brand.

2. PhonePe – India’s largest digital payments platform continues to grow and engage its existing customers efficiently due to its rewards program. PhonePe’s loyalty program offers cashback, offers, and coupons. You can use these rewards to make payments on PhonePe and other apps and websites. Scratch cards are one of their most popular features. Approximately 74% of PhonePe users self-reported as loyal customers, according to data.

Why use LoyaltyXpert

Our loyalty management platform leverages the latest technologies to minimize your efforts to generate brand loyalty for your FinTech business. We provide customized brand loyalty programs to cater to a wide range of customers effectively. Some key features that set our loyalty program software apart are:

• Easy Configuration: Hassle-free configuration of loyalty rewards and offers to achieve goals.

• Customizable Rewards: Transform the customer experience based on various demographics with personalized loyalty rewards.

• Advanced Analytics: Underline the power of data. Monitor key data points and generate reports of your loyalty programs. 

LoyaltyXpert believes that happy customers translate into endless growth. Reach out today for a free trial and experience the difference for yourself!