How Embedded Finance Companies Can Unlock the Power of Rewards Programs

From points to cash back and more — incentivize customer engagement and boost revenue with rewards

Sep 21, 2023

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September 21, 2023

A diverse array of players, spanning from commercial neobanks to SaaS and B2B finance companies in sectors like healthcare, real estate, and investment platforms, are exploring embedded finance and accompanying rewards initiatives. What’s driving this exploration? A strategic maneuver to transform themselves into pivotal centers for their clientele, fostering a deeper connection and heightened usage of their offerings.

The crux of this evolution involves rolling out functionalities like white-label bank accounts and digital wallets through API banking. These features are designed to capture the attention of existing users, nudging them to remain actively engaged within the platform's ecosystem and encouraging frequent visits.

But that's not all — enter the realm of innovative rewards programs. These seamlessly dovetail with the engagement strategy, not only encouraging users to amplify their product usage but also cultivating a genuine sense of loyalty.

A recent survey by Treasury Prime, in collaboration with PYMNTS, spotlights the potency of rewards. Results show that rewards increase consumer interest in storing funds within apps by at least 49%, even among consumers who have not previously used these apps.

Given this heightened interest, we explore the benefits of rewards programs and provide examples of embedded finance companies that are running rewards programs.

Ways to use rewards in embedded finance programs

Rewards programs for embedded finance programs can take many forms: cash back, discounts, points, and more. Rewards programs offer multiple benefits: Boost card interchange revenue by promoting customer spending, or encourage customers to store funds in an account and spend more money using the platform.

Some rewards programs require nothing more than a checking or savings account, while others require a card program. Exact processes can vary depending on the company, the rewards program model, and the bank integration setup. Revenue from interchange, interest, or fees can cover or offset the costs of running the rewards program. The specific approach to marketing and accuracy of representations may cause regulatory concerns so you always want to obtain approval from your bank partner prior to launching or advertising any such program.

Incentivize card spending to boost interchange revenue

There are different ways to encourage customers to spend with their new white-label debit card. Cash back programs offer customers small partial refunds on purchases. One reason a fintech might choose cash back as a perk is that, unlike a discount or coupon, it doesn’t require you to coordinate with vendors to offer the benefit.

Businesses could offer a flat cash back rate on certain or all purchases, and tailor the reward to fit their brand. As mentioned above, there can be regulatory repercussions of not marketing this benefit accurately or creating confusion so you always want to collaborate with your bank partner on these offerings.

Here are some embedded finance examples:

Cash back: Buildertrend

Buildertrend, a construction management software company, aims to be a one-stop shop for builders. They offer two percent cash back on all business purchases from their white-label debit cards as part of Buildertrend Wallet. The cash back is credited to the customer account automatically at the end of each month.

Cash back on partner purchases: StoreCash

Some companies work with partners or vendors to offer even bigger discounts. For example, StoreCash offers up to 15 percent cash back on purchases across hundreds of stores and thousands of brands. The cash back appears in the user’s StoreCash digital wallet instantly and can be applied towards the next purchase.

Round-up donations: Currensea

Currensea, a U.K.-based company, offers individuals and businesses a travel debit card that removes FX fees when spending abroad or making online software subscription payments to U.S. dollar-priced services. Users can automatically round up purchases or contribute a percentage of their savings and donate it to a charity of their choice. They can also apply the funds towards planting trees or recovering plastic in the ocean with Currensea’s partner charities.

Round up stock purchases: Stash

Stash is a personal finance app that offers a stock-back debit card. With the program, users earn up to 1% of their purchases back in the form of fractional shares of stock. This means that every time a user makes a purchase using their Stash stock-back card, a portion of the transaction amount is invested in a diversified portfolio of stocks. This allows them to participate in the potential growth of the stock market over time. As users continue to use their Stash card for everyday expenses, they accumulate a portfolio of fractional shares, effectively turning their spending into an investment strategy.

Promote customer loyalty & sales

All rewards programs serve to strengthen relationships with customers, but some rewards work more directly to promote sales and encourage customers to engage with the app long-term.

Points: Starbucks

The Starbucks app is one of the most well-known embedded finance examples. It streamlines purchases, payments, and rewards management, all accessed through a smartphone. With every sip, users accrue points that they can redeem for free drinks and food, and other tangible rewards, fostering brand loyalty. A quarter of all of Starbucks’ U.S. store transactions now occur via the app, and the retailer holds as much cash in its app and on its cards as some banks hold in deposits.

Tiered points: Uber Pro Rewards Program

Uber drivers earn one point for every trip they take, with bonus points if they drive during peak hours. Depending on how many points they accumulate they can reach Blue, Gold Platinum, or Diamond status. The higher the status, the more rewards they can get from discounted fuel, auto parts, or tire stores. Or, they can get priority customer support from Uber.

For those with high Uber Pro status, Uber also offers additional rewards through the Uber Pro debit card, which offers 2% to 10% on gas purchases in any city, along with EV charging. Drivers also get paid instantly for completed Uber trips for free.

Essential Components of a Rewards Program

To implement a rewards program, you need to lay the groundwork starting with a couple of essential embedded finance solutions that are likely already in your arsenal.

1. Bank accounts

For customers, having access to white-label bank accounts is crucial for most fintech or embedded banking solutions. The inclusion of ACH-enabled virtual bank accounts facilitates the seamless transfer of monetary rewards to clients.

For companies, having an operating account serves as a repository for managing various operational expenditures. In the context of a rewards program, companies may conduct book transfers between their operational accounts and client accounts, enabling the sharing of interchange or interest revenue with clients.

3. White-label debit card program

The establishment of a card program is pivotal for the rollout of interchange-funded rewards initiatives. This strategic move leads to the accumulation of interchange revenue as customers engage with their cards for transactions.

Features of embedded banking rewards programs

Keep in mind when designing a rewards program, that when a program speaks to customer needs and desires, it spurs customers to get more invested in using a platform. Experts say a well-designed rewards program goes beyond simple discounts or perks and possesses some key attributes. Also ensure to engage with your Bank Partner to ensure the use case is consistent with the Bank’s risk appetite:

1. Customer understanding: To create an effective rewards program, it's crucial to understand what customers truly value and identify their preferences, pain points, and aspirations. One big advantage embedded banking brands and fintechs have over other types of companies is that they have access to data to analyze customer behavior.

2. Personalization: Generic rewards may attract some attention, but personalized rewards leave a lasting impact. Once there’s an understanding of customer behaviors through data, it becomes easier to tailor rewards that meet their wants and needs.

3. Emotional connection: A rewards program can foster an emotional connection between customers and a brand. Surprise elements or unexpected rewards can also evoke positive emotions. When customers feel delighted and pleasantly surprised, they are more likely to remember the experience and remain loyal.

4. Tiered systems: Implementing a tiered rewards system adds a gamified aspect to a program. As customers engage more with the platform, they unlock higher tiers with better rewards. This progression creates a sense of achievement and encourages continued interaction.

5. Exclusivity: People are drawn to exclusivity. Offering exclusive rewards to loyalty program members nurtures a sense of belonging and status, enhancing customer loyalty.

Every company will apply its unique take to the rewards structure. There's no one-size-fits-all approach; rather, it's a versatile tool in your repertoire that allows you to craft distinctive rewards programs tailored to your customers.

How do you ensure your card maintains a prime spot in customers’ wallets, ahead of others? Find out in our free on-demand webinar with Marqeta, “How to Boost Card Usage and Top of Wallet Behavior.”

How Embedded Finance Companies Can Unlock the Power of Rewards Programs

Ways to use rewards in embedded finance programs