Retailers focus on enabling omnichannel experiences and building retail ecosystems that enable commerce at every point of inspiration.⁴ Card value propositions, however, have historically been less engaging for customers. They continue to focus on immediate discounts or added credit at the point of sale (for larger purchases).⁵ Issuers should strategically focus their value propositions to support a recurring retail shopping experience. This can mean driving spend via a growing channel (e.g., video, social, chat) or reinforcing a retail ecosystem (e.g., by creating a seamless purchase and redemption experience across that ecosystem).

Let’s not forget, many customers value the largest discount they can get on either an upfront purchase, or on specific purchases if they’re loyal to a brand. Unfortunately, those same customers often don’t use the card again after the first purchase, resulting in a high inactive cardholder rate, a limited ability to drive continued transaction volume, and lower revolving balances. In response, retailers have shifted to cash back as a better option to drive continued spend. But experience shows that cash-back deals risk a race to the bottom among the competition. Given that retailers usually pay for all or most of the rewards, this could eliminate the margins that make partnership cards so appealing to issuers and negate the volume increases and customer stickiness that make them important to retailers.⁶

Cash back or acquisition discounts reinforce the commoditized nature of many retail products, rather than focusing on how to create a personalized experience. Loyalty programs have become ubiquitous, with increasing consumer enrollment but flat consumer engagement (The average consumer is engaged in 14.3 programs, but only active in 6.7)⁷.

It’s important for partnerships to think about their mutual goals and invest jointly to ensure their customer experiences, redemption strategies, and visions are aligned and measured. The ability to contextualize and personalize redemption options while promoting a retailer’s channel strategy is critical for modern partnership programs.

In addition to driving strategic channel spend, issuers can also strategically drive category spend this way. If a retailer would like to increase sales in higher margin categories or toward products or partners that drive store traffic, rewards and redemption options can be offered just-in-time to nudge customers toward the desired behavior. While some companies are experimenting with these types of nudges (e.g., using in-store beacons and push alerts), efforts are relatively immature.

As security becomes a concern for customers, virtual cards or text alerts can provide visibility and control over (irregular) spend. As speed and convenience become ever more important, a “walk in/walk out” experience using facial recognition can be a differentiator—albeit an expensive one to add to existing stores.

Likewise, partnerships need to think broadly to include ecosystem participants. As retailers build retail ecosystems to increase revenue and service beyond their own capabilities, issuers must keep up and get infrastructure and data ready.

Owning the physical and digital POS is critical for partnership programs. For customer acquisition, this is the ground on which they can have true competitive advantage against general purpose cards.

A key differentiator for partnership cards is their access to captive customers at the retail POS, a moment when customers have already indicated their interest in making a purchase. Switching customers in-store from shoppers to owners has historically had a significantly higher conversion rate than online. Estimates place in-store purchase conversion rates at seven times higher than online.⁸ In addition to higher acquisition rates, owning the POS allows partnership cards to build a deeper, more personal customer relationship from the outset.

For example, issuers can offer immediate incentives to reuse the card or underwrite specific purchases made with instant financing (e.g. new furniture or a large electronics purchase). However, one of the challenges with offers at POS is that the customer experience must be near-frictionless due to extreme focus most retailers place on a rapid, seamless checkout.

In addition, in-store conversion from application to cardholder can be twice as high due to lower fraud risks.⁹ Conversion rates for in-app and web purchases aren’t as high as they are in-store. But the same logic applies, as a customer is already deeply engaged in the shopping experience and has displayed some brand loyalty to a retailer.

Developing the technology and messaging to own the POS is critical. Arguably, the largest key to success lies in turning retail employees into evangelists. It’s no secret that motivated employees drive significantly higher conversion rates. Motivation doesn’t need to come from direct, financial incentives. Instead, partners should create employee training that supports employee product evangelism, because owning and using the card is in the best interests of their customers. If the value proposition is clearly communicated and structured to employees, employees will drive acquisition volume.

This evangelism becomes even more important as the transaction becomes part of a seamless shopping experience.¹⁰ Associates who previously spent their time at the register helping with customer checkout will become trusted advisers to help better meet customer needs. The program should provide a value that customers need. The application must be effortless. And upon approval, the card needs to be immediately available and ready for use, in both physical and digital form.

That said, many competitors to partnership cards have larger marketing budgets, and sophisticated channel strategies. With changing customer preferences and increasing market options, owning the POS isn’t enough to win against competitors. Partnership programs need to complement their in-store advantage with robust channel strategies to drive awareness and affinity.

While partnership cards may not have similarly large marketing budgets, they can focus on creating rich content and raising awareness via personalized outreach that drives brand affinity. Specifically, in the content-rich world of online advertising, partnerships may want to shift spend away from channels that drive general awareness and toward those that will resonate deeply with their key customer segments.

At the individual level, they should focus on direct marketing (e.g., paid online marketing) in niche segments. For example, an issuer that has a portfolio from a leading electronics retailer could drive channel spend via paid reviews on gaming influencer sites or vlogs (video blogs).

Competition has increased. Digital acquisition is on the rise. partnership portfolios should consider leveraging non-traditional data and investing in cloud-enabled underwriting engines to more rapidly and accurately manage risk at the customer level.

Despite often having riskier pools of cardholders, underwriting for partnership cards historically enjoyed three key advantages:

• Lines were typically smaller.
• Spend was more concentrated.
• Almost all applications were in-store at POS, where fraud could be more easily managed.

Given slower growth in acquisition, partnership portfolios must ensure they maximize the incremental margin they get from each applicant with more rapid and accurate underwriting engines that are both cloud native and leverage non-traditional data sources.

While many issuers are beginning to leverage behavioral data in underwriting, partnerships have a unique opportunity to leverage retailer data as a key differentiator. The additional information on customer shopping patterns can help rapidly and accurately extend lines of credit at application while driving down fraud rates.

But to effectively integrate purchase and behavioral data into fraud models for retail customers, issuers will need to invest in cloud-based underwriting engines that can handle massive amounts of near real-time data from retailers and that have secure connections for the mutual exchange of retailer and issuer data. While the cost of technology and ta lent investment is high, partnering with flagship cards or other retail portfolios is a powerful way to manage cost while still building a case for modernizing underwriting.

In addition, once the secure connections are in place, this data can support the development of more customized products and services based on a better understanding of customers through their behavior (who they are, what they value, and how they shop). This need not be a one-way street. Financial data can help retailers better educate their customers on how to smartly manage their credit, track spend with dashboards, and proactively drive savings opportunities in line with the card’s value proposition.

While it may seem to be a secondary concern, when financial firms, like card issuers, are seen as customer advocates, they directly drive customer loyalty and future purchase intent.¹¹

To execute effectively on each key lever, partnership portfolios need to ensure that they have: