Digital Disruption – Page 57 – Digital Finance Analytics (DFA) Blog

To Have a Killer Loyalty Program, Retailers Need to Think Big

According to eMarketer, just because a consumer joins a loyalty program doesn’t mean she’s active in it.

Loyalty programs have become an important marketing tool for retailers, and most companies entice shoppers to join these programs by offering rewards. But these incentives may not be enough to keep consumers satisfied and happy that they joined it in the first place. Retailers may need to think bigger, and more long-term.

Just because a consumer joins a company’s loyalty program doesn’t mean she’s active in it. Research from Bond Brand Loyalty, in partnership with Visa, found that the average internet user in North America belongs to about 13 loyalty programs for companies in various industries. Yet members are only actively participating in about half of the initiatives they have signed up for.

Perhaps consumers feel they aren’t getting enough out of some loyalty programs to continually participate in them, and retailers may need to change that. Some already have.

Take Sephora for example. The retailer’s loyalty program has an immense following, especially among beauty junkies. The program is simple: consumers who are interested start off at the Beauty Insider level, which is free to join—and every dollar spent earns them a point. VIB is the next level, and shoppers need to spend a minimum of $350 annually to reach it. Sephora’s VIB Rouge membership is its most elite, and to reach that, consumers would have to spend a minimum of $1,000 annually. As consumers climb further up the ladder to VIB Rouge status, they are met with more exclusive rewards like a private hotline and invitations to exclusive events.

And although Sephora has been successful with its loyalty program, the retailer has taken things a step further. Sephora recently introduced its Rewards Bazaar, where loyalty program members have access to new rewards—including samples, services and one-of-a-kind experiences—every Tuesday and Thursday. Some of these rewards include customer makeovers, which barely cost the company anything since their in-house makeup artists perform them. Other rewards are more high-end and limited, like a master makeup class at Anastasia Beverly Hills, or a Tory Burch gift set that includes a bag, wallet and perfume, among other things.

An initiative such as this—basically surprising and delighting customers—can boost brand perception. And an influx of rewards, especially those that are more tailored and personalized, can keep loyalty program participation going. A survey from loyalty marketing research and education practice Colloquy found that more than half of respondents who had joined a program in the past 12 months did so because they were able to earn points or miles on their purchases. Nearly as many had received a product or service offer. And 75% of respondents said they stayed in the loyalty program because the rewards and offers were relevant to them.

On the whole, the majority of US marketers intend to allocate more of their budgets to customer loyalty next year, research from multichannel loyalty and analytics company CrowdTwist and Brand Innovators revealed. In addition, about 13% said they anticipate significant increases in spending on such programs.

According to the data, more than half of respondents said they plan to put more dollars into their loyalty programs next year. Some 44% said they will somewhat increase loyalty budgets, and 13% plan to significantly. Only a mere 4% said they anticipate lowering investment.

The Top Digital Suburbs Around Adelaide

As we continue our series on Australia’s top digital suburbs, today we look at SA, and the region around Adelaide. The top postcode is 5159, which includes Aberfoyle Park, Chandlers Hill, Flagstaff Hill and Happy Valley in South Australia. The area is about 17 kms from Adelaide.

The location of digitally active households is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we map the current branch representation around Brisbane, based on the latest APRA points of Presence report.

Then we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes. There is a striking mismatch between the two.

Here is the top 10 listing by number of digitally aligned – mobile first – households across SA. They vary by segment, age, zone and region.

This information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will look at the state of play in Perth and then reveal the top ten digital suburbs across Australia.

Top Digital Suburbs In Brisbane Region

We continue our series looking at Australia’s top digital suburbs by looking at households in QLD. The top postcode is 4670, in the Bundaberg region about 297 kms from Brisbane. In fact across the state, there are a number of regional hot spots where digital usage is very high.

To illustrate this we map the current branch representation around Brisbane, based on the latest APRA points of Presence report.

Then we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes. There is a striking mismatch between the two.

Here is the top 10 listing by number of digitally aligned – mobile first – households across QLD. They vary by segment, age, zone and region.

Households are leading the way.

Next time we will look at the state of play in Adelaide and subsequently explore developments in other regions, before revealing the top ten digital suburbs across Australia.

The Top Digital Suburbs In Melbourne

We continue our series on where most digitally active households reside. Today we look in the Melbourne district. The largest number of digitally active households reside in the post code of 3977 which includes Botanic Ridge, Cannons Creek, Cranbourne, Cranbourne East, Cranbourne North, Cranbourne South, Cranbourne West, Devon Meadows, Devon Meadows, Five Ways, Junction Village, Junction Village, Sandhurst and Skye.

To illustrate this we map the current branch representation, based on the latest APRA points of Presence report.

Then we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes. There is a striking mismatch between the two.

Here is the top 10 listing by number of digitally aligned – mobile first – households in VIC. They vary by segment, age, zone and region.

Households are leading the way.

Next time we will look at the state of play in Brisbane and subsequently explore developments in other regions, before revealing the top ten digital suburbs across Australia.

ACCC to consider declaration of mobile roaming

The Australian Competition and Consumer Commission will today commence an inquiry into whether or not to declare a wholesale domestic mobile roaming service.

Access to a roaming service would enable mobile service providers to provide coverage for their customers in areas where they don’t have their own network.

The ACCC is aware that mobile coverage is an increasingly important issue in Australia, with a greater impact on those living in regional areas.

“Consumers are increasingly relying on mobile services and the issue of coverage and a lack of choice in some regional areas is a particular issue that has been raised by a number of groups,” ACCC Chairman Rod Sims said.

“There has been significant interest in the questions around access to mobile networks and mobile roaming, including from representatives from regional Australia, the Regional Telecommunications Review Committee, Infrastructure Australia and the House of Representatives Agriculture Committee.”

The ACCC says a declaration inquiry would focus on a number of key issues, including:

how consumer demands for mobile services are evolving, and whether there are differences in regional areas to urban areas

the likely investment plans of each of the mobile network operators to extend coverage and upgrade technology, absent a declaration

whether there are any significant barriers to expanding the reach of mobile networks

any lessons from similar experience with domestic mobile roaming in other countries.

The ACCC has previously considered mobile roaming in regional areas in inquiries held in 1998 and 2005 respectively. On both occasions it decided not to regulate an access service as it was satisfied roaming agreements were being commercially negotiated.

“Network coverage is clearly a key feature of a mobile service, and each of the mobile network operators has extended its networks since we last looked at this issue in detail,” Mr Sims said.

“A lot has changed since 2005. We do think it’s time we look at the issue again in detail, and examine some of these key matters, including consumer demand, network investment, and barriers to competition. We consider the most efficient way to do that is to consider all of the issues carefully through a declaration inquiry.”

Mr Sims stressed that, at this stage, the ACCC had not formed any views on whether declaration of a mobile roaming service would deliver benefits for consumers.

“A particular area of concern for us is whether consumers would, in fact, be disadvantaged if the incentives to invest in expanding the reach of mobile networks were reduced,” Mr Sims said.

The ACCC has also released an issues paper today for a separate but parallel market study into the communications market as a whole.

“We considered whether we should examine mobile roaming issues as part of the market study. However, we decided that a more focused inquiry to deal with the issue more quickly will provide the market with greater certainty, sooner,” said Mr Sims.

NPP’s New CEO Starts Today

The company formed by the payments industry to build and operate the New Payments Platform, NPP Australia Limited, has a new CEO, with the commencement today of Adrian Lovney as its inaugural Chief Executive Officer.

The New Payments Platform is a major industry initiative to develop new national infrastructure for fast, flexible, data rich payments in Australia. The Program proceeded to the fourth phase, “build and internal test” in August 2015. The NPP is on track to being operational in the second half of 2017.

The Program reached a historic milestone in December 2014 when 12 leading authorised deposit-taking institutions (ADIs) committed funding for the build and operation of the NPP. These institutions became the founding members of NPP Australia Limited.

NPP Australia also signed a 12-year contract with global provider of secure financial messaging services Society for Worldwide Interbank Financial Telecommunication (SWIFT) to design, build and operate the basic infrastructure. The establishment of NPP Australia and the appointment of SWIFT marked the launch of the Program’s “design and elaborate” stage, which was then successfully completed in July 2015. The current “build and internal test” stage is scheduled for completion in early-mid 2017.

In October 2015, NPP Australia reached agreement with Australia’s premier bill payment system provider -BPAY – to deliver the first overlay service to use the NPP once it is operational in the second half of 2017.

The NPP will be open access infrastructure for Australian payments. The intention is that all ADIs will connect to the NPP, either directly or indirectly through another member, so they can process a wide variety of fast data-rich payments for their account holders. ADIs can choose to join the NPP at any point in its development and operation.

Core members are Australia and New Zealand Banking Group Limited, Australian Settlements Limited, Bendigo and Adelaide Bank Limited, Citigroup Pty Ltd, Commonwealth Bank of Australia, Cuscal Limited, HSBC Bank Australia Limited, Indue Ltd, ING DIRECT, Macquarie Bank Limited, National Australia Bank Limited, Reserve Bank of Australia and Westpac Banking Corporation.

NPP Australia Chairman Paul Lahiff said in June, “Adrian is an energetic leader with a passion for leading large-scale transition programs and is well-equipped to head up the commercialisation of the NPP.”

“Adrian emerged as the outstanding candidate from an extensive domestic and global search process and the NPPA Board is delighted to have secured his services,” Mr Lahiff said.

Mr Lovney was the General Manager of Product & Service at Cuscal Ltd with responsibility for product, services, and customers across the business, including leading the organisation’s work in NPP. Previously, he was Cuscal’s General Manager Strategy & Communications, responsible for leading the evolution of Cuscal’s business over the last five years as well as the successful migration and transition of customers to a new and innovative payments platform.

Mr Lovney said in June , “I am honoured to be taking on this important role at this critical stage in the development of Australia’s New Payments Platform. The NPP is a uniquely Australian take on the real time payments infrastructure being implemented overseas. Its layered business architecture will deliver scale and efficiency, while supporting a diverse range of fast payments well into the future.

“These are exciting times and I am thrilled to be able to work with the NPP Australia Board and shareholders of NPP to help them realise the benefits of the investment they have made in this new payments system for Australia,” Mr Lovney said.

The Potential For Digital Disruption In Insurance

The General Insurance sector is one of the laggards across financial services when it comes to digital transformation. However, according to a new report from McKinsey, whilst the sector lags in digital sophistication and so examples of the full benefits of digital are scarce; they suggest that the top 20 or 30 processes can account for up to 40 percent of costs and 80 to 90 percent of customer activity. Digitizing these processes can take out 30 to 50 percent of the human service costs while delivering a much better customer experience. And the benefits do not end there.

The nature of competition in property and casualty (P&C) insurance is shifting as new entrants, changing consumer behaviors, and technological innovations threaten to disrupt established business models. Though the traditional insurance business model has proved remarkably resilient, digital has the power to reshape this industry as it has many others. Innovations from mobile banking to video and audio streaming to e-books have upended value chains and redistributed value pools in industries as diverse as financial services, travel, film, music, and publishing. As new opportunities emerge, those insurers that evolve fast enough to keep up with them will gain enormous value; the laggards will fall further behind. To succeed in this new landscape, insurers need to take a structured approach to digital strategy, capabilities, culture, talent, organization, and their transformation road map.

Though the P&C insurance business has long been insulated against disruption thanks to regulation, product complexity, in-force books, intermediated distribution networks, and large capital requirements, this is changing. Sources of disruption are emerging across the value chain to reshape:

Products. Semiautonomous and autonomous vehicles from Google, Tesla, Volvo, and other companies are altering the nature of auto insurance; connected homes could transform home insurance; new risks such as cybersecurity and drones will create demand for new forms of coverage; and Uber, Airbnb, and other leaders in the sharing economy are changing the underlying need for insurance.

Marketing. Evolving consumer behavior is threatening traditional growth levers such as TV advertising and necessitating a shift to personalized mobile and online channels.

Pricing. The combination of rich customer data, telematics, and enhanced computing power is opening the door to usage- and behavior-based pricing that could reduce barriers to entry for attackers that lack the loss experience formerly needed for accurate pricing.

Distribution. New consumer behaviors and entrants are threatening traditional distribution channels. Policyholders increasingly demand digital-first distribution models in personal and small commercial lines, while aggregators continue to pilot direct-to-consumer insurance sales. Armed with venture capital, start-ups like Lemonade—which raised $13 million in seed funding from well-known investors including Sequoia Capital—are exploring peer-to-peer insurance models.

Service. Consumers expect personalized, self-directed interactions with companies via any device at any hour, much as they do with online retail leaders like Amazon.

Claims. Automation, analytics, and consumer preferences are transforming claims processes, enabling insurers to improve fraud detection, cut loss-adjustment costs, and eliminate many human interactions. Connected technologies could allow policyholders and even smart cars and networked homes to diagnose their own problems and report incidents. Self-service claims reporting such as “estimate by photo” can create fast, seamless customer experiences. Drones can be used to assess damage quickly, safely, and cheaply after catastrophes. All these disruptions are being driven and enabled by digital advances, as illustrated with examples from auto insurance. No single competitor or innovation poses a threat across the entire value chain, but taken together, they could lead to the proverbial death by a thousand cuts: many small disruptions combining to fell a giant.

The Top Digital Suburbs In The Sydney Region

Where do most digitally active households reside? This is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

To illustrate this we have mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes. Then we also map the current branch representation, based on the latest APRA points of Presence report. There is a striking mismatch between the two.

Lets take the Sydney area as an example. Below is the branch representation, with the largest number of branches in the Sydney CBD, and a smattering across the region.

Now looking at the representation of mobile first households, we see a very large number in Sydney CBD, as well as hot spots across the Sydney basin.

Here is the top 10 listing by number of digitally aligned – mobile first – households in NSW. They vary by segment, age, zone and region.

Households are leading the way.

Next time we will look at the state of play in Brisbane and subsequently explore developments in other regions, before revealing the top ten digital suburbs in Australia.

Fintech’s Attack All Banking Client Segments

Whilst most Fintechs are attacking the retail banking value chain, where the share of global revenue is highest, all segments are under attack according to a report published by McKinsey “The value in digitally transforming” credit risk management“. This chart which shows the footprint of Fintechs relative estimated share of bank revenue and client segments.

Whilst it may not be fully representative for any one segment or product, the chart is based on McKinsey’s financial-technology database which includes >350 of the best-known start-ups. “Commercial” includes small and medium-size enterprises, “large corporates” includes large corporations, public entities, and nonbanking financial institutions. The “financial assests and capital markets” includes investment banking, sales and trading, securities services, retail investment, noncurrent-account deposits, and asset-management factory.

The new competitors are beginning to threaten incumbents’ revenues and their cost models. Without the traditional burden
of banking operations, branch networks, and legacy IT systems, fintech companies can operate at much lower cost-to-income ratios—below 40 percent.

Apple hits back against banks

From ComputerWorld.

Even if the Australian Competition and Consumer Commission (ACCC) authorises collective negotiations between a group of banks and Apple over the use of the Apple Pay platform, the iPhone maker says that it “will not and cannot” agree to the conditions likely to be sought by the banks.

Bendigo and Adelaide Bank, the Commonwealth Bank of Australia, National Australia Bank and Westpac last month applied to the ACCC for authorisation to collectively negotiate with mobile wallet providers, with the application naming Apple’s service as well as Google Pay and Samsung Pay.

The banks argue that Apple, Google and Samsung are potentially in a position to negotiate terms for use of their mobile wallets that “likely to result in reduced competition and innovation, and increased risk in the security and transparency of mobile payments.”

Currently in Australia only American Express and ANZ customers offer Apple Pay support for their customers, but worldwide more than 3000 issuers support the platform, according to Apple.

Apple says that based on the banks’ application to the ACCC, the applicants will not agree to support Apple Pay unless it allows them to charge consumers for the use of the platform, it provides access to the iPhones Near Field Communications (NFC) antenna, and it agrees to security guidelines drafted by the applicants that will only apply to third party mobile wallets (not the banks’ own offerings).

These terms will “undermine the availability, security and privacy our customers expect when using Apple devices to make payments,” Apple argues in a submission to the ACCC. The submission follows on from an interim submission that “strongly urged” the ACCC to reject the banks’ application.

Apple says that it has attempted to negotiate agreements with each of the applicant banks bar one (which was not willing to sign a confidentiality agreement). The inability of the banks to reach agreement with Apple “demonstrates that each individual applicant bank possesses a significant amount of bargaining power against Apple,” the iPhone maker argues.

“As each of the banks has individually resisted serious engagement with Apple for the past two years, collectively negotiating will further entrench the applicant banks’ position by ensuring that all of them can only advance in lockstep with the slowest, least willing member,” the submission argues.

“The applicant banks would know that they can continue to hold out without the threat that one of their competitors will introduce Apple Pay for their customers, which could result in the loss of some customers who will switch banks in order to access Apple Pay.”

Apple in its submission takes particular umbrage to banks seeking access to the iPhone’s NFC capabilities.

“This is not open to negotiation with any bank,” the company argues. “Apple designs its products to provide very secure experiences, especially where payments are concerned. Apple has been able to provide the required level of security with tight integration of hardware, software, and services such as Apple Pay. Apple does not provide banks access to the NFC radio because doing so would undermine the security our customers expect when using Apple devices to make payments.”

As justification, the submission cites examples of security vulnerabilities in Android.

Apple adds that just because it will not support use of NFC by third parties, there are alternative technologies that can be used for contactless payments, for example QR codes.

“Apple’s desire to protect the integrity of its own proprietary hardware installed within its own devices is not anticompetitive,” the submission argues. “It is not ‘exclusive dealing’ conduct to which Australian competition law applies.

“What the applicant banks are seeking is the right to impose a collective boycott for the purpose of putting pressure onto Apple to grant them access to proprietary hardware and software. Apple has invested significant financial and other resources developing a simple and convenient mobile wallet service with the highest security and privacy protections available. This is also the basis on which Apple seeks to differentiate its mobile wallet from those offered by other mobile wallet providers.”

The full submission is available online.