8 KPIs to Capture the Success of Your Banking Loyalty Program

Loyalty & Trends
Aug 28, 2021
3 min read

Your KPIs will influence your future loyalty strategies, all of them requires being focus on customer-centric data as the key to measuring the impact of your banking loyalty program. 

Before you start tracking your loyalty program KPIs you need to be clear in your goals, for this we know most mature programs are running their KPIS based on Objective Key Results (OKRs) with this approach you have a clear understanding of your objective and how to squeeze your tasks to conquer it.

Your KPIs will influence your future loyalty strategies, all of them requires being focus on customer-centric data as the key to measuring the impact of your banking loyalty program. 

Most of the loyalty executives in bank are funnelists they divide their day-to-day work in tasks oriented to Acquisition, Activation, Retention, Revenue and Referral. So the following KPIs determine a measure of every part of the funnel.

These loyalty program KPIs will be your ongoing guide to the health and sustainability of your loyalty program. Each one is important, and all of them are connected.

Cardholder Acquisition Rate

As a bank you have a number of cardholders but not all of them know or visit your loyalty platform, so acquiring them is very important.

You can have the best loyalty program in the world, but it doesn’t do any good if no one knows about it. For this is crucial to identified your cardholder, understand their behavior and engage everywhere.

The Cardholder Acquisition Rate (CAR) is calculated using your last period, usually a month, and use it as a percentage as the common denominator.

CAR = (New Cardholders current Month - New Cardholders last month) / (New Cardholders last month)*100

This simple KPI can give you a point of view of how good is your loyalty program attracting new cardholders. Maybe you think this is a marketing job, but best loyalty executives are merging their program with a lot o marketing campaigns.

Reward Redemption Rate

The Reward Redemption Rate (RRR) is a great KPI since it is related to the velocity and consumption rate of your loyalty points (not sure if points or cashback?), which provides insights into whether customers are actively engaging with your program. 

A monthly increasing in the RRR means your cardholders are engaging with your loyalty program this is like your market-fit indicator, if you use a graph to see the RRR the curve you will love to see is a crescendo shape line. 

Loyalty executives can drill down in this KPI and determine who are the most enthusiastic loyalty cardholders (we call it champions) and indicate which types of rewards are redeemed more than others. 

Banks change in their strategist, but here are  3 important factors that impact directly the Reward Redemption Rates:

  1. Cardholder’s perceived value of your points (read our article about point perception value)
  2. Ease of earning and spending points
  3. Variety of rewards. 

By the other hand, if your program has a low RRR it may be an indicator that customers don’t find your offers valuable or personal enough. If members aren’t engaged, they won’t use your program often or ever. For low RRR, you need to focus on more data-centric initiatives like improve point value perception and understand cardholder behavior to suggest more personalized rewards and points and cash payments

To calculate RR, you'll need to know the total number of points that have been spent, as well as the total number of points issued over the lifetime of your program. The formula for determining RR is as follows:

RRR = Total Points(or Cashback) Redeemed/Total Points Issued

Cardholder Retention Rate

Cardholder retention rate (CRR) is a foundational metric for loyalty executives. CRR can help the loyalty department to determine how effective their loyalty program is retaining cardholders.

This is a common KPI the high number means your program is retaining a low CRR may indicate that you have troubles with your program sometimes marketers and loyalters will focus all the efforts in awareness with expensive campaigns and improving the UX flow with customer journey design but not in all this cases these enhancements impact your loyalty program sometimes you require to dig around your data and improve reward personalization, better push offers, and financial innovations like BNPL functionalities.  Remember that retain is less expensive than attracting new ones. 

To determine your CRR  it's better to use periods based on campaigns, use periods based on your campaign efforts you'll need to know the number of cardholders you had at the beginning of the period, the number of new cardholder acquired during the period, and the number of cardholders in your loyalty program had at the end of that period.

CRR = (Ending Customers – New Customers) / Initial Customers x 100

Average Transaction Value

These metrics show a simple and plain average of transactions per cardholder is a different way to  measure how actively and regularly the cardholders are using their points or credit card in the loyalty program. Transactions are measured the way cardholder earn and spend points within a certain period of time.

Monthly estimation of the ATV is a great way to evaluate the effectiveness of your loyalty program. 

ATV = # cardholders transactions / # all loyalty program active cardholders

Loyalty executives measured this KPI based in different tiers, type of rewards and type of credit card.

Repeat Purchase Rate

The repeat purchase rate (RPR) provides the percentage of repeat buyers among your customer base. This is one of the most important KPIs, since the loyalty program's mission is to build a strong relationship on time and reduce acquisition costs with cardholders as advocates referring your cards

A low RPR  sometimes is related with a negative experience with the UX flow, lack of personalization offers and product-based (i.e., disappointment in purchase quality).

To determine your RPR, retailers need to know the total number of buying customers as well as the number of customers who have purchased two or more times.

 RPR = Repeat cardholders/total buying cardholders 

Cardholder lifetime value

The Cardholder lifetime value (CLV) is a must when measuring the success of your loyalty program. This KPI predicts the cardholder future value. It’s like a crystal ball where you need to do some complex calculations to find the value. The calculation takes into account both revenue and expenditures to date, as well as predicted future revenue and costs.

With legacy technology you need to focus on the most engaged cardholders of your loyalty program with Muscle Technology you can focus on everyone, so you’ll ensure higher redemption and repeat purchase rates, leading to more loyal customers, more devoted brand advocates, and increased ROI. 

Point Average Cost

If your loyalty program have points as their transactional model, this KPI measures the cost of your points, Point Average Cost. Reduce the point cost is vital for retail banking since the bank can drive this efficiency to their cardholders and their profitability. Banks can do this with white-labeled platforms and artificial intelligence, improving their reward costs and reducing their loyalty efforts.

PAC = Total points used to redeemed rewards/Redeemed goods/experiences costs

Breakage Rate

Breakage rate is the percent of points issued that do not get redeemed. These KPI sound like something positive, but a high Breakage is like a bad symptom that show us that cardholders are not engaging, increasing transactions and perceiving value from your loyalty program. Some reasons may cause this:

  1. Points expiring too fast,
  2. Cardholders don’t see value in spending points, 
  3. Cardholders never earned enough points to redeem for anything (including the firs time).
  4. Bad NUX (New User Experience)

In the other hand, a low Breakage is related with a healthy and actively loyalty program where cardholders are happy with your offers and point value.

Breakage: Total number of points not spent / Number of points issued (includes expire points)

Maybe your Financial executive may be happy with a higher breakage rate to reduce costs, but this is a common tramp, instead it is your job to empower your cardholders to redeem their points faster and better.

With Muscle your loyalty department will have an end-to-end solution ready to use from a white labeled platform to a suite of APIs that improve every KPI we mentioned in this article. If you want to build the future, contact us today.

Ricardo Murillo
Subscribe to amazing content
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.