How many credit cards do you have in your wallet? Or how many different loyalty programs are you a member? In Singapore, we love our credit cards! Credit cards make up for 60% of Singapore’s’ payment market, where 1.6 million credit card consumers and close to eight million credit cards circulating in the country, credit card consumer owns an average of five cards! 31.2% of Singaporeans own four cards. WOW! The amazing part is if you remove all the people that have zero Credit Cards, the national average of cards per consumer doubles.
With the Singapore Fintech Festival just around the corner, and the Monetary Authority of Singapore (MAS) taking applications for the new virtual bank licenses, I thought it would be fitting to dive into a topic that’s been quietly evolving, how we exchange value. And I mean more than just money.
The reason Singaporeans and most Asian countries have such high credit card ownership stems from a behavioral and psychological trait that comes as a consequence of incumbent approaches to payments. Desperate to reduce cost or extract deeper data insights, the Merchant Point of Sale has been the victim of over-attention, as players seek to drive relevance, growth, and revenue. Cashback programs, loyalty points, merchant rewards, and discounts are now an expected part of everything transaction. And it’s affecting the choices consumers make about financial services products.
It is a daily practice that we all make decisions on how and where we use our money. Having four credit cards to choose from isn’t a preference in itself. Instead, the efforts of cashback, rewards, and loyalty have meant that it’s favorable for the consumer to have a Citi Bank Credit Card for 10% on Din Tai Fung, an OCBC Credit Card for 24.6% off Esso Fuel and a Standard Chartered Credit Card for the 1.5% unlimited cash back. Throw on top of that loyal programs like Passion, Kris Flyer, Star Bucks, Harry’s Bar, Grab, Ez-Link, and dozens more that add to the complexity of making the right choice when you make a purchase. They give you access to incredible perks such as exclusive deals, rewards, discounts, private sale events, gifts, and more — all to commemorate your membership. How could you resist?
What results is merchant side rewards have a significant impact on the choice of financial instrument you use to make a purchase. And as a result, consumers tend to have multiple credit cards to ensure the maximum value of the dollar they spend.
In 2019 we are now deep into the age of digital payments, where payments are driven by smart devices such as smartphones, tablets, and more. The payment moment can move from the ‘dumb’ transaction of plastic into a machine to a smart deal, and a few companies have recognized this trend and are already capitalizing on it. It’s a trend that I fully expect to dominate the payments landscape within the next two years. And it’s a trend we call Contextual Value Exchange.
Contextual Value Exchange
The best example to explain the Contextual Value Exchange goes at follows;
Two individuals, Bill and Mary, walk into a local 7-Eleven to buy a can of Coke. Bill holds a very high status at Singapore Airlines, plus has known brand affinity the Coca Cola brand after he watched YouTube videos, like Instagram posts, and even posted multiple photos with Coke products in the image. Bill banks with DBS, but also hold Credit Cards with Citi, HSBC, and OCBC. Mary is an up and coming lifestyle influencer, and has a middle of the field travel blog for busy professional women. She is a regular 7-Eleven customer in all the cities she visits.
With varying levels of loyalty within the 7-Eleven ecosystem, different cashback, and loyalty programs, Bill and Mary have bias behaviors in their purchase. For many consumers, this choice is mainly subconscious. Do they lean towards loyalty and rewards, to do they lean towards short term discounts? What’s the role of the Product Brands? What’s the role of 7-Eleven?
Often I forget the status on a particular credit card, as it fluctuates based on recent spend. This highlights the limitation of the current system, most people have only an ‘assumed’ understanding of the value in their cards, programs, and points. Yet, the decision to choose the right one falls to the customer, and it’s stressful.
For Bill and Mary, with different forms of value in their lives (loyalty, affinity status), plus actual dollars, means they both purchase a can of Coke from 7-Eleven. Yet the ecosystem behind the transaction ensures they get the maximum value from every dollar spent. Bill pays a net of $1.17, while Mary pays $1.56. 7-Eleven receives the full $2.00 amount, as the cash amount is topped up with customer acquisition and customer retention value drawn from loyalty, affinity and rewards programs. The actual amount debited is calculated last, as the amount taken will be influenced heavily by loyalty and affinity programs, typically funded out of marketing budgets.
The benefit of the real-time recalculated value exchange would avoid the high overhead approaches in place today for rewards, loyalty, and discounts. Currently, such discounting is only possible by cashback or voucher programs, and it’s not real-time. Meaning reconciling the cashback is disconnected from the momentum of the transaction.
In the ecosystem, 7-Eleven can also invest in customer attraction and retention, to boost their value as a merchant in the ecosystem.
A few players are already implementing parts of this vision. FavePay (formerly Groupon) has deployed a QR payment ecosystem that draws down from merchant rewards inventory in real-time, growing utilization rates and boosting customer experience for the consumer. For me, it means I actively look out for merchants with the FavePay logo. My daily visit to Sarnies Cafe in Singapore results in a discount ranging from 10-25%. It’s been so impactful on my choices, I now have an array of merchants for goods and services ALL that accept FavePay. Grab has implemented a similar offering using the national QR codes, as an extension of their super app dominance in South Eash Asia.
In summary, the holy grail of payments is the convergence of payments, loyalty, affinity, status, and rewards into an ecosystem that understands all the value in a consumer’s life, matching it with the motivate and budgets of business, to autonomously maximize value in the exchange for goods or services. Leaving the merchant satisfied with the investment in customer acquisition and retention, and the customer satisfied they’ve made the best choice in every purchase. The banks and non-banks currently planning for a virtual bank, it would greatly boost their adoption rates and market success to seriously consider helping build this ecosystem. For if we don’t, payments will continue the trend towards technology and super app companies. This will require collaboration at new levels, that set aside a bias for control and a vision for an open ecosystem.
Scott Bales is Managing Director of Innovation Labs Asia, and is a global leader in the cutting edge arena known as “The Digital Shift”, encompassing innovation, culture, design, technology and mobility in a world gone digital.