In Search of Non-Interest Income, Merchant-Funded Rewards Offer FIs One Outlet

With interest rates providing banks little revenue generating solace, financial institutions nationwide are seeking new money-making sources that aren’t reliant on the going yield. In some cases, the growing hunger for profits is opening FIs up to more innovation possibilities. 

That point was at the heart of a conversation I had last week with David Fruhling, chief operating officer and chief financial officer at Fisoc, a fintech vendor that caters to the smaller institution and credit union crowd.

“Institutions are all looking for new ways to make money and provide new services,” Fruhling tells Bank Innovation. “New business models are important for the financial health of the institution.” 

One method? Offering cardholders merchant-funded rewards to incentivize loyalty toward a payment form. And that fresher strategy is one that Fruhling’s company has been recently pushing out to local retailers. The loyalty toolkit, which Fisoc continues to develop, grants merchants options in what ways they can offer banking customers deals and is a component of the vendor’s BuzzBanking platform, which integrates directly into financial institutions’ technology. Through the platform, consumers receive reward points from the bank and participating merchants for each transaction and can also earn additional points when they use social media to promote the program. Those points can be redeemed for gift cards. Or perhaps a retailer wants to offer a banking customer a coupon with a Groupon-like flair, like offering a consumer a $50 face value deal with a purchase price of $25. That’s possible with Fisoc’s toolkit, too, Fruhling says.

The aim of the merchant program is to help retailers better compete in their local environments by offering an improved marketing opportunity than say them running a newspaper ad or internet advertising, Fruhling explains. In other words, BuzzBanking touts its technology as a retention marketing and new customer acquisition tool for retailers. Issuers, in turn, reap the benefits of cardholders staying loyal to their cards.

Tying rewards to consumers’ payment transactions has been an innovation area that keeps gaining traction and has been a sector Bank Innovation has closely followed over the last 12 months. See some coverage here, here, and here.

Fisoc, for one, hopes to tap into the ever-more-crowded scene by selling its services to smaller institutions and credit unions, while banking on the belief that most local merchants are also commercial customers of its FI clients. Because the merchant is already connected with a FI, BuzzBanking expects that merchants will accept calls from their banks, and thus, be more amendable to participating in the marketing program.

The underlying objective of BuzzBanking as a whole is to further even the playing field between big banks and smaller institutions and credit unions, Fruhling says. This dynamic, he says, has already been happening organically with events like Bank Transfer Day and Occupy Wall Street taking place within the last 12 months.

“Never before in the history of American banking has there been a better playing field for them to compete against mega banks,” he says.

But, Fisoc still has the challenge of convincing banks to sign on to fresher technology.

“Banks and credit unions are, by nature, very conservative,” Fruhling says.

Even so, the couponing space has a lot of appeal for many customers and is a sector that has not been fully utilized by banks or retailers yet. 

The other day, Bank Innovation spoke with Cartera Commerce, another company that offers card-linked offer programs to banks, that reiterated this point.

“Consumer interest in and desire for deals is rampant,” Tom Beecher, president and chief executive, tells Bank Innovation. “Card-linked offers is a new advertising to consumers. Most big retailers don’t have a line item for it yet.”

Whether the demand is “rampant” or not we couldn’t say, but we, like Beecher, are sure merchants will add a couponing budget line sooner rather than later. There is a shopping evolution going on out there, after all.