There is a clear trend with the young generation to be averse of credit cards. They have seen from their parents what a too high usage of credit cards can lead to and at the same time feel that credit cards are complex and lack transparency.

The rise of BNPL is a clear consequence of that, i.e. these companies provide a different means to the same end (buying a good on credit), but with a better user experience and more transparency (or at least the feeling of more transparency).

As a result of this shift, a potential gap is rising on all loyalty and reward programs offered by most (credit) card schemes. These advantages are a huge market, although these rewards are often more the perception of getting
value than receiving actual value (as very few people actually consume those discounts/rewards).
BNPL players are already taking initiatives on this part, as they launch their own loyalty programs (in order to differentiate themselves from other BNPL players, now that new players enter the BNPL market). The issue with this is that today
most merchants only opt for 1 BNPL player in their check out process, so the choice of which BNPL to use is currently still at the merchant side and not at the consumer side. This contrary to credit cards, for which almost all common schemes (VISA, MasterCard,
American Express, UnionPay…​) are offered by almost every shop.
Obviously when consumers will express more and more a preference for specific BNPL players (e.g. due to their loyalty programs or other reasons, like reduced interest rates in case of late payment or other value-added services), merchants will be forced to
offer multiple BNPL solutions in their checkout process (giving the choice to the customer).

These loyalty programs can however also be expanded outside the credit space and can be a valuable instrument to increase the Buying Power of customers and attract new and retain existing customers.
As a result many banks are also launching all kinds of reward or loyalty programs, in the form of coupons, loyalty savings, games, prices, cash-backs…​ (e.g. ING Deals, KBC Deals or Argenta Cake in Belgium), with many new innovations in the Financial Services
world in this domain, like:

• Loyalty programs linked to debit cards

• Integration of loyalty cards in banking apps (cfr. KBC or Payconiq in Belgium)

• Automatic allocation of cash-backs or loyalty points based on the automatic identification of applicable transactions (potentially using PSD2/Open Banking services).

• Suggestions for cheaper offers for recurring costs / subscriptions like electricity, insurances…​

• Group acquisitions organized by banks

• …​

Unfortunately the usage of those innovations remains limited and the user experience is far from great, due to all kinds of maturity issues, e.g.

• The difficulty to be aware that an interesting deal exists, i.e. most deal-platforms just show a list of their deals, making it really difficult to be aware of a deal that could be interesting for the user. Techniques (often based on AI
  models) like

  • Suggesting relevant deals for the user, e.g. via push messages based on your purchase history and/or current geographic location or sections like “Deals for People Like You”

  • Sorting deals according to relevance for the user, i.e. based on the purchase history of the user, brand recognition and/or current distance of the shop to the user

  • Clearly highlighting new deals (since the user’s last visit on the platform)

  • Good user filtering options

  • Automatically hiding deals which are not relevant for the user, e.g. local deals in other cities

  • Highlighting deals which are (most) relevant at specific moments, e.g. based on the weather or based on previous user actions in the banking app or purchases done just before (i.e. identified from the payment history or via PSD2/Open Banking)

  • Launch online shopping (via redirect) directly from the banking app (cfr. Trooper) which allows to pop-up applicable deals

  • Offer possibility for a user to configure deals visualization settings for himself, i.e. allow the user to configure which kind of deals he is interested in, e.g. which sector/category, which region (could be multiple, e.g. region around
    his home address and region around his work location), physical and/or online shops, national chains and/or local shops, coupon versus cash-back versus gift card deals…​

• Even if the user has identified a relevant deal for him, the user should still be assisted to avoid forgetting about this deal, e.g. get notified when the user is close to a store where a relevant deal can be used or get notified when a
  deal is about to expire.

• A good compromise should be found between simplicity for the end user and visibility for the merchant, i.e. a user would like that any applicable deal is consumed automatically without any user intervention,
  but for the merchant this can give very little added-value, as in such a setup most of the purchases linked to those deals would also have happened without the deal. This means the merchant gains almost no new business thanks to the deal, but has to pay nonetheless
  not only the discount, but also the commission to the bank. Obviously this is far from ideal for the merchant, who obviously wants maximum advertisement value out of his deal.

• Merchants prefer to offer very targeted deals, like offering the deal only when a certain product is bought or only offer to specific customers (e.g. customers who don’t shop in the store yet or customers who used to be a customer at the
  store, but recently decided to switch to a competitor). Unfortunately for banks these types of fine-grained deals can be technically challenging and often even impossible (e.g. a deal that is only applied on a specific product is only possible when the bank
  has access to the purchase ticket information – provided by the merchant or the customer) or legally challenging (e.g. using financial information for commercial purposes can be an issue from a GDPR perspective). Hopefully Open Data initiatives for Retailers
  and initiatives to pass ticket information along in a payment request (like SEPA Request-to-Pay) could be gamechangers for this.

• The difficulties to support more complex deals, like

  • Deals that combine multiple purchases (at the same store or different stores), e.g. a parking ticket that is reimbursed when shopping in the neighborhood is done, a discount when shopping X times in a specific period at a store…​

  • A cash-back when you spend more than X EUR on a specific dayin a Shopping Center (all shops combined)

  • Deals only available for specific weather or time, e.g. deals that can also be used during lunch hours or in the weekend, a deal for umbrellas pushed automatically at a rainy day…​

  • Deals pushed by merchants instantaneous, e.g. restaurants still having a free table last-minute, last-minute hotel or travel booking…​

• Many customers use different banks and different payment methods for consumption. The Deals platform should however automatically identify and aggregate all financial transactions applicable for a deal, i.e. include joint-accounts and payments
  made via Credit Cards, BNPL players, Paypal…​, payments made by accounts at other banks (retrieved via Open Banking/PSD2), payments made with social vouchers (like meal or gift vouchers)…​

• The cost for a bank to find proper deals (i.e. deals which are a bit exclusive, interesting for the customers and are in line with the ethical and sustainable standards of the bank) can be extremely high. At the same time merchants lose
  a lot of time, in discussing, defining and signing the same deal with multiple providers (banks, telcos…​) . Clearly lead generators and aggregators (like Google and Facebook have an almost monopolistic position for digital marketing) could
  bring an interesting offering in this space. Additionally there is a need for more digitalization and standardization towards merchants, so that smaller shops can easily publish deals (coupons, cash-backs, gift cards…​) to multiple providers in a fully digital
  way (just like you can buy an advertisement on Google, Facebook or LinkedIn fully digitally today).

With buying power dropping due to the inflation rates sky rocketing, any means to support customers to increase their buying power can be a serious competitive advantage. It will be interesting to see how banks can resolve
the above issues, so that they can find the best Win-Win-Win balance (i.e. Win for the customer, Win for the bank and Win for the merchant) in this space of deals.