If you have thick skin, you’ll do just fine as a banker. I know, I walked in the moccasins for about 10 years.

As economic cycles come and go, consumer confidence and trust in large financial institutions varies, but the range of difference bounces between “low and lower”. The American Banker Magazine (nicely relaunched recently and worth a read if you follow the industry) carried a short article reporting on the results of the 2011 American Banker/Reputation Institute survey.

The good news is that bank reputation scores improved between 2010 and 2011, with banks jumping up 2 spots and leaping ahead of telecommunications and energy firms. The bad news is that the improvement was from next to last in 2010 to 14th of 17 industries ranked in 2011.

Looking into the components of the reputation score, researchers noted that the impact of products and services on reputation scores diminished over the past year.  Not surprisingly “Performance” was the highest-weighted factor as consumers continued to worry about the outcomes of the recent recession.

Less noticed was a shift in importance for “Innovation”.  The researchers acknowledged that retail banking product and service offers in market were very much at parity and stated that “the days of being able to differentiate with free checking or a free toaster…that isn’t the path going forward.”

Here’s the best part – the article makes clear that the best way a bank can distinguish itself in the market is “by listening to customers, focusing on their needs and helping them understand how it makes business decisions.” If there was ever a research-driven foundation for further investigation of a relationship approach to bank marketing, this is it.  After a bit of a pause, total relationship banking programs seem to be taking off again. Colloquy reported on two new programs launched recently – one from ANZ Panin Bank in Indonesia and the other by Union First Market Bank in Virginia. The concept has truly gone global as I discovered Touch Points Rewards, a well formed program from Abu Dhabi Commercial Bank (UAE).

If possible, banks have to uncover the means to become more approachable, transparent, and caring if they want to improve their market reputation. The stakes are higher than survey results however, as there is a big opportunity for credit unions, savings and loans, and banks large and small to differentiate in the market through recognition and reward  of customers based on the overall relationship value. With pressure on individual products, debit and credit cards in particular, banks need to recruit the value of customer relationships if they are to mount a value proposition sufficient to change behavior and increase share of wallet with customers.

There’s no “one way” to structure a total relationship banking program, but there is one way that the programs will lead – to profitability.

Navigating the business landscape requires more discernment and wisdom than ever. It seems to be the season of negotiation, and lobbyists from both sides of a case seem willing to take huge gambles for a chance to win big.

When the National Football League’s collective bargaining agreement expired on March 11, the locked-out players responded swiftly, filing an antitrust suit that challenges a wide range of NFL rules as well as the work stoppage. The National Basketball Association is facing a similar standoff and, according to some sources, both sides are willing to risk an incredibly lucrative business for just a wee bit more money (well, maybe a lot more).

Just as difficult as it is to say who’s to blame for the NFL work stoppage, it is difficult to predict where current negotiations around the Durbin Amendment will end. We reported last week that Durbin had registered it first Loyalty program kill. The count was actually “2″ as both Regions Bank and PNC Bank announced changes to their relationship banking programs.

Following the two bank announcements, JPMorgan Chase announced that it is considering capping debit card transaction limits at either $50 or $100. According to my calculations, the average transaction amount of all debit transactions for the top 6 debit issuers (Bank of America, Wells Fargo, JPMorgan Chase, US Bank, PNC Bank, Regions Bank) was about $41 in 2009.

The average transaction amount for signature transactions, those to be impacted most by Durbin, was slightly higher at nearly $43, but in any case, you can quickly understand that placing a $50 cap on debit transactions, the product would lose its utility for most consumers. Placing a cap of any kind, in my opinion, could spell death for Debit, so my initial shock upon reading this news quickly transformed into hope that the JPMorgan Chase announcement might be nothing more a negotiating ploy in the fight to stave off implementation of interchange legislation as currently written.

Debit cards are referred to by some in the payments industry as “deposit access” products. They were created to ease consumer’s access to their own money and as a welcome mat to a stickier relationship. The reduction in processing costs from paper checks was foundational to the business case and was enhanced by the prospect of incremental spend and fee income. Debit card loyalty programs were built with an expectation of incremental spending with the product and, to an extent, by assuming that average ticket size will increase.

I am hopeful that the chain of business logic circulated over the past 10 years won’t be broken in favor of a gamble against interchange legislation. In any event, it seems that the banks are preparing for the worst case to become reality.

Loyalty marketers with a stake in financial services and debit card rewards programs should give this subject serious thought and be prepared to make rapid adjustments in their own market strategies.

Winter Can Be Bleak

Imagine you are playing a video game populated by card based loyalty programs. It wouldn’t be difficult to choose the best weapon from your arsenal to facilitate widespread destruction.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed May 2009 and implemented over 3 phases through August 22, 2010. This would be the first choice to weaken the enemy. Evidence of diluted value propositions, added fees, and cancelled co-brand cards are easy to find across the industry.

To finish your domination of card based rewards programs, simply swap weapons and pile on the damage with the Dodd-Frank Act, specifically the Durbin Amendment, set for implementation in July 2011 pending evaluation of comments received during the recently ended period on Feb. 22, 2011.

Squeezing revenue streams on credit and debit cards have an obvious impact on the bank’s ability to assemble a card rewards program that is attractive to consumers. For example, Durbin will potentially reduce electronic debit transaction (EDT) interchange fees between 25-75%.

Card issuing banks are preparing for the worst-case scenario with swipe fees and interchange being reduced, and Region Bank’s announcement this week that it is suspending enrollments in its Relationship Rewards program was a shocker.

Total Relationship Banking has some challenges to proliferate in the industry, but the continued operation of Citi ThankYou, PNC Points, and the new launch of Regions Relationship Rewards offered hope that financial institutions would change their approach to customer loyalty, transcending cards to reward relationships.

Interesting in all of the current market uncertainty is that merchant lobby groups are pushing for more controls. Merchant lobbys insist that Durbin leaves too much money on the table, and that the ceiling for debit interchange is up to 8 times higher than it should be for signature debit transactions, and 36 times higher for PIN debit transactions.

I have three thoughts that merchant lobbys and over-eager legislators might want to consider before they launch a full-on nuclear attack on the banks:

1. The proposed Durbin Amendment may provide card processing cost reductions to merchants and good sound bites for legislators, but retailers will have to cope with a new reality where they shoulder more responsibility for funding their marketing efforts, losing a strong funding partner in the banks.

2. This new burden comes at a time for retailers when the “Groupon” effect is reaching its apex. Consumers are being conditioned to seek deep discounts while tactics to drive repeat visit, wallet share, and account retention are deferred as a priority. That’s not good for longer term retail profitability.

3. Retailers will have to review their participation in merchant funded rewards programs that continue to be the best model to provide rewards on Debit. How will retailers balance their joy for interchange reduction victory with their desire to drive portfolios of consumers to their brand via use of an affiliated Debit card?

Interchange legislation has a highly checkered history in Australia and the same is proving out in the EU. If all parties involved truly wanted to put the customer first, there would be softer talk on interchange legislation with a longer term view to sustaining profits.

I don’t take credit for much, but Total Relationship Banking (TRB) is a term that I created while working with the Colloquy consulting group around the turn of the Millennium. I recently had the chance to catch up with the “Patron” of TRB, Fabio Garcia and our talk spurred thoughts for where TRB might be headed in the future.

After working together to launch “Premia” several years back, I had a vision of how banks could finally take their card based rewards programs to another level and build enterprise-wide loyalty in the process. Excited about unleashing a new concept in retail bank marketing, we expected to see many banks follow suit.

Interestingly it took 2 years before Citi launched ThankYou! and another year or so for National city to launch its Points program. During the recent economic cycle, National City was acquired by PNC Bank and the PNC Points program remains in market today. An even longer respite occurred before Regions Bank introduced Relationship Rewards this summer.

With Regions’ new entry into the market, the question seems valid to ask again. Will TRB become the “next new thing” in retail bank marketing.

The answer: No – at least not by way of the model used by Regions Bank.

TRB has always been challenged by a short list of key obstacles:

1. Who Owns the Program?

Rewards in banking first took hold in cards and extending the currency to retail, mortgage and wealth management groups introduces potential conflict for program management. Only with Executive level support and a loyalty czar in place, do multiple product owners cooperate to the extent needed to achieve success.

2. How do we measure profitability?

The metrics used to track profitability in cards, retail banking, and loan areas are distinct. Appointing a standardized value for a loyalty currency and mandating its use across all product areas is not an easy task.

3. Who pays for the program?

The substantial cost of operations and allocation of financial liability is a sensitive topic. If I own consumer loans and only want to participate in my TRB program on a promotional level, do I accept cost allocation or do I just purchase points from the program owner as if I was a sponsor in a coalition program?

These organizational challenges are tough to solve, but the answers can be found. The place where attention deserves to be focused these days is on the customer.

I recently conducted a review of Regions Bank Relationship Rewards and, while it is clever and well thought out, the earning grid is too much for most consumers to understand. The temptation to over-engineer loyalty strategy is irresistible at times – I’ve been found guilty of it in the past.

The best strategies are those that can be implemented in a practical manner, are easily explained to customers, and pose the lowest level of friction for enrollment and participation. Establishing a bank-wide loyalty currency creates the foundation for an effective enterprise loyalty strategy, but its use should be apportioned carefully.

Credit and Debit Cards, Current and Savings accounts are high frequency products that are the glue for long term bank relationships. Loyalty currency can be applied in strong doses here. Every other bank product or service is tied to life-events and therefore loyalty currency should be used sparingly and on a promotional basis for best results.

The bigger question is how much customers care about bank rewards programs. I have not been able to confirm that consumers want to consolidate their banking relationship beyond a certain intangible threshold. The Boomer generation grew up hearing about the risks of “putting all your eggs in one basket” and the Millennial generation matured while living through the most frightening banking crisis in several decades.

As one wise banker recently shared with me, we don’t need to challenge the validity of TRB as much as we need to set realistic goals. Maybe we’re not after 80% + of an individual bank relationship, but simply want to establish a core group of products that defines a “primary bank” relationship. In other words, maybe 40% wallet share is 100% victory.

Enterprise loyalty is an achievable goal for retail banks. Striving to create bank brands that drive consumer loyalty, even passion, should be on banker’s lists of Key Performance Indicators for next year. Banks can still create a retail brand promise that is delivered holistically and complements reward with product innovation and outstanding service.

Now is the time to tackle the job, as consumers have never been more interested in transparency, safety and responsible financial management.

Relationship Banking is making a comeback with the launch of Regions Relationship Rewards this  past summer. The $137 Billion asset bank ranked #3 among 11 banks in the Southeast region of a JD Power survey on customer satisfaction, but was facing some challenges as the survey footnoted their ranking this way; “customer loyalty and perceptions of brand image among retail banking customers continue to decline, while satisfaction has leveled off.”

Seeking to engage customers and encourage them to consolidate their banking relationship with Regions, Relationship Rewards was announced in June 2010 with the brand promise “To thank customers for their business” and the tagline “the more you bank, the more you earn”.

Anyone with one of three checking accounts (business or personal) is eligible to enroll in the program as long as they also have an active Regions Visa CheckCard to boot. Customers can enroll across multiple channels including toll-free call center, program website, or via the online banking application. Interestingly, the branch was not used to enroll customers.

Points are earned by making signature based purchases with a Regions CheckCard and, as is the norm in debit card rewards schemes, no credit is given for PIN based purchases. The earning rate per dollar spent on the check card varies by type of customer with Consumer checking holders earning 4 points/$ while Business customers earn 2 Points/$ and Private Banking customers earn 1 Point/$.

Bonus points are awarded based on how many products are owned by the customer and the level of average balances held in deposit accounts.

Program rules are simple and reasonable. There’s no annual fee to join Relationship Rewards and no cap on points earning per year. Points expire 36 months from the date earned and customers which close accounts in good standing have 90 days to redeem their points.

Based on two sample customer scenarios that I tested, the first a lighter debit card user with lower average balances ($250/month and Avg Bal $2,000) and the second a heavier debit card user with high average balances ($2,000/month and $50K), annual reward value could be accumulated between $90 – $385.

Considering that points are valued between 50 – 100 basis points, the light user could redeem for a one free wire transfer fee, a $100 Visa gift card, or a Wet/Dry Shop Vac. The higher earner could walk away with a bicycle, $500 gift card, or a Bose Sound Dock.

Rewards are available in four categories, merchandise, gift cards, bank rebates and travel.  There is no lack of reward choice and it appears the most value can be found by redeeming for free bank services.

A few observations from my review:

• Even though this program is created to encourage broader relationships and higher account penetration per customer, most of the value that can potentially be accumulated by customers comes from the debit card spend.
• The highest reward value can be found through reduced fees on bank services. Whether customers will find compelling reason to consolidate their banking with Regions to earn a free wire transfer fee, or pay for a safe deposit box is questionable.
• Including a redemption option for NSF (returned check) fees is bad form. I know bad things can happen to good people, but who wants to cash in points to pay for an overdraft?
• The travel rewards offer no-blackouts, and cash and points can be combined to earn rewards. Both are good features for travel rewards in today’s market.

Regions Bank Relationship Rewards is a solid entry into the retail banking market and follows TRB best practices closely. I’ll look for any results published and update those in Loyalty Truth when available.

Relationship Banking is a term that has been around since the 80’s. In its first use, it described a holistic level of service that branch personnel could deliver to customers by having the entire bank relationship on their computer screen.

Gone were the days of reviewing daily overdraft reports and making subjective decisions about whose items to return or pay – now a branch manager could use hard data to make those decisions.

The concept was right, but retail bankers became distracted with more pressing matters until Banco Popular introduced its Premia program in 2002. I was fortunate to be part of the team supporting the launch, and coined the term Total Relationship Banking (TRB) at that time while working in the Colloquy consulting group (now Loyalty One).

TRB has at its core the use of a common rewards currency (points) awarded to customers to recognize their acquisition and use of any retail banking product including credit cards, debit cards, checking accounts, loans, and investment products.

TRB has become a commonly used industry acronym and once Citi launched its ThankYou! program in 2004, the buzz was that TRB would take retail banking by storm. Instead of a tidal wave, we saw just a ripple or two hitting shore as National City launched its Points program in 2006 followed by ….. nothing.

Nothing that is, until Regions Bank, the 22nd largest US Bank with $137 Billion in assets, launched Relationship Rewards during this past summer. Now we have banks ranking #3 (Citi), #12 (PNC), and #22 sporting a TRB model to increase customer loyalty and retention. As a footnote, PNC acquired National City during the past 2 years and morphed Nat City Points into their own branded currency. It says something about the value of the program that it was not shelved during the course of PNC’s takeover of National City.

One of the outcomes of the recent financial downturn has been increased focus in retail bank marketing on building relationships, encouraging financial literacy skills, and introducing or re-shaping loan and deposit products. The emphasis has been on transparency and value and consumers are responding.

Relationship Banking is a complex model to structure and manage and there is mixed research on whether consumers really want to put the majority of their eggs in one basket, regardless of how many points they can earn.

I’m going to take a closer look at the Regions Bank program this week and also summarize the opportunities and challenges with TRB over the next few posts.

If you’re not a banker, don’t worry, I have a juicy Foursquare post ready to go!

When people are asked about their greatest fears, you might be surprised by the results.

In recent polls, I have seen public speaking rank ahead of getting cancer and being stricken by terrorist attacks!

Apparently in Canada, the list would be different still. A recent article in the Toronto Globe & Mail reported that in a recent Angus Reid Strategies poll of 624 Canadian parents, talking about finances with their children was one of their greatest fears. Over all, the Moms and Dads surveyed felt better prepared to discuss sex, drugs and alcohol than to broach the topic of finances. And I thought that the conversation about the “birds and the bees” was enough to break a sweat!

According to Sarah Boesveld’s article, the survey findings shine a light on the real state of adult financial literacy and points to the particular squeamish-ness of Canadians about financial conversations. Steve Garmaise, associate director with Foundation for the Advancement of Investor Rights (FAIR) was a bit more opinionated, saying “most Canadians and most parents are fairly ignorant about financial matters…and would rather hand it off to someone else.”

I would venture to add that Canadians are not alone in this regard. This is yet another reinforcement of a clear opportunity in the marketplace, and the enterprise which is able to communicate financial basics and planning skills to the public without making them uncomfortable can create loyalty among its customer base without giving away the first point or mile.

Who is better to assume this leadership role than commercial banks? Banks have multiple channels through which they can communicate (retail branch networks and secure internet banking portals) and enjoy a high frequency/high visit environment. They have an edge over competitors including brokerage firms and insurance companies which have less frequent interaction with their clients and can be too narrowly product focused.

Having just written about Social Banking and illustrating how Bank Of America is launching products designed to address consumer’s need for financial product transparency, the Canadian survey is interesting and timely. The question is: how should a bank go about executing a financial literacy campaign?

Do you include features of Financial Literacy in a relationship banking model, or is it better to skip the rewards and focus on delivering a clear message and creating trust that the products recommended are the ones a person actually needs? Time will tell, but I do believe that “what doesn’t kill you makes you stronger“. For banks, this means that flagging consumer confidence in their offerings coming out of this recession can be used as a golden opportunity.

Banks can rebuild their brands and stake out a competitive edge in the near term through marketing products as financial advocates for their clients and with a message based on value and transparency. This is the time to leave the disclaimers, fine print, and hidden clauses out of product offers. No Loyalty Asterisk™ here, please! Sun Trust is talking about “Banking Solid“and Bank of America is leading with its innovative approach to credit cards and mortgages.

Let’s see which organization makes this message a part of the core brand message, not just a convenient fad that dries up and blows away when times get better.

Citibank launched its ThankYou! Network in 2004 and in doing so,  staked out ground as the first top-tier bank to embark on a rewards program that went beyond credit card and included multiple retail bank products like checking accounts and consumer loans.

Credit to the first bank to launch a Relationship Banking program in North America goes to Banco Popular de Puerto Rico which launched its Premia program in 2002. The architect of the Premia program, Fabio Garcia-Passllacqua, deserves kudos for incredible vision and courage in launching Premia and can be proud that the program continues to return strong results to the bank.

Citi has made progress with its program, its alliance with Expedia just one example of extending the value of their ThankYou! points through intelligent partnering.

Two news items sighted this week, however, may signal a change in course for the ThankYou! program and its value for it members.

First, AMR Corp., owner of American Airlines, announced that it had taken steps to raise $2.9B cash to quiet investment community concerns about its future liquidity.  In a press release, AMR revealed details of the cash raise and that it had agreed to sell $1 Billion of AAdvantage Miles to Citigroup, its long standing cobrand credit card partner.

Though Citi reported to treat this advance purchase as a loan, it clearly indicates the importance of the Citi AAdvantage credit card as the flagship product in Citi’s card business and the confidence the firm has in its ability to drive card usage and acquisition by offering AAdvantage miles as a reward.

It also highlights that while relationship banking remains a challenging concept to sell to consumers, credit card rewards programs are like the high-hot heat that got Nolan Ryan into the baseball hall of fame.  Like the fastball, it’s a straight-down-the-middle value proposition that consumers understand.

The second news item that not everyone will connect to ThankYou! is Citi’s announcement that it is concentrating its retail banking business in the U.S. on six key markets. Explained another way, Citi is executing a plan to close branches in many markets and shrink its retail delivery system. Though Citi offered a statement that “Customers, not products, are driving Citi’s strategy for North America consumer banking”, one has to wonder how easy it will be to compete for deposits with the likes of Bank of America and Chase when the only way to open an account for customers outside of the 6 markets is through a website.

The two announcements taken together makes you wonder if the expansion of a relationship banking program can be successful as the institution scales back its retail network, and if the temptation to return to a cards-centric approach to rewards to meet short term goals will put ThankYou! in a back seat.

There are some things that people just can’t live without these days. The mobile phone tops the list and, depending on your age and demographic, is closely followed by the Blackberry, iPod, Instant Messaging service, or Xbox 360.

Fortunately for bankers, the 7.16 square inches of plastic known as a credit or debit card is high on the list as well. Each of the associations has contributed to reinforce the importance of payment plastic in our lives. American Express implanted the enduring message “don’t leave home without it”. MasterCard successfully reminds us that their card is “Priceless”, while Visa punctuates the importance of cards by shouting “Life takes Visa”.

Once universal acceptance was established and association brands gained global recognition, it was the rewards business that propelled cards to their next phase of development. Though there is a card for everyone, reward cards continue to capture the highest levels of consumer attention and drive profitability for issuers.

Don’t believe me? Then hear what Visa, Tower Group and McKinsey have to say:

• A 2005 Visa study reported that 50% of all general purpose cards offered rewards in the US market and accounted for 77% of all purchases.

• The Tower Group reported that ““Reward programs may be a lifesaver for an industry experiencing a 0.3% response rate to card-acquisition letters and long-term threats from new technology such as cell-phone payments”

• McKinsey provided more evidence with this comment: “Loyal customers typically generate 30 – 70% more value than run-of-the-mill clients do”

This body of evidence for card rewards has a dark side. It exists in the strong sense of entitlement for rewards by most cardholders and the lack of differentiation in card reward program structure in the market today. The question is, where do we go from here?

To establish leadership in the issuing business, 4 key questions must be answered:

• How can the rewards game be played at lower cost?

• How can program liability be better managed?

• Can rewards currency be used to achieve multiple goals beyond retention?

• Is there life after “points”, and how will the next wave of innovation take form?

Answers to these questions are complex. To merely focus on cost control may jeopardize cardholder perception of the value proposition. The industry is in desperate need of true innovation and fortunately some answers are in sight. Current attention getting trends include Relationship Banking and Merchant Funded rewards programs. Successful examples of each concept are in evidence though relationship banking has yet to promulgate through the industry and merchant funded rewards programs need further evolution.

Not yet on the radar is a rewards structure that will solidly engage the 80 million Americans known as Generation Y (the Millennials). Social networking and viral concepts including the patent pending “Xcelerator” might hold answers for the industry to break the code with younger consumers, but market trial is needed for validation.

One key to creating true innovation might be to set aside the traditional “product launch” mindset and approach the business from a consumer/cardholder viewpoint. Granted that many card marketers might discard this comment as dated, but if that’s so, why don’t we see the tree bearing fruit?

As example, I was on the ground in 2002 when the first Relationship Banking program was launched in North America. Despite the success of that program, I have not seen independent research indicating that offering rewards across multiple products will significantly change consumer opinion of their financial institution. In other words, are we creating products that enamor industry practitioners while we miss the mark with our customers? Are we even sure that consumers desire a relationship with their bank or will service, trust, and advocacy define brand loyalty in banking?

The card rewards race will continue to intensify and the issuers which emerge to capture market share will be those committed to pursuit of true innovation and have their ears tuned to the customer drumbeat.

Bill Hanifin