Strengthening Customer Relationships Thru Transaction Benefits

By Kenneth G. Kraetzer, Vice President, CBSI, Harrison, New York
& Adjunct Marketing Instructor at Mercy College, Dobbs Ferry, New York


The consumer has more control over how they buy, when they buy and what they buy than ever before. Advancements in technology have created an environment for consumers to compare products, engage similar buyers for product opinions, and negotiate prices by simply using a computer or mobile device.

With many industries, the ability to acquire new customers therefore becomes more difficult each day. Companies must keep watch of every competitor activity while simultaneously working to differentiate. Companies must continuously invest in tools and systems that will bring products and services to consumers uniquely.

The financial services industry – the greatest consumer of benefit products and services – constantly searches the market for better means to increase customer loyalty and overall spend via benefits. In the February 4, 2009 issue of American Banker™, the declining use of debit cards is causing concern for both MasterCard™ and Visa™. As such, both payment networks will need to discover new ways to attract and maintain customers. Visa™, MasterCard™, and American Express™ have more than 1.1 billion[1] different types of transaction accounts – debit cards, credit cards, checking accounts, mobile payment vehicles – in the U.S. alone. Those benefit providers that can meet the needs of the financial services industry stand to receive exceptional financial gain.

Consider the following:

  • Consumer and commercial transaction accounts can each be used in identical fashion across millions of merchants worldwide
  • A significant differentiator among all transaction account products are the product and service benefits which financial institutions purchase from other sources
  • Privacy issues continue to drive the need to provide new types of revenue generating products to account holders
  • Payment Network’s (Visa™, MasterCard™) public offering caused the need to retain customers and generate revenue
  • New technological developments enable one-to-one targeted marketing to the consumer
  • Emerging market payment vehicles such as a Paypal™ and Mobile’s SpeedPass™ provide even more alternatives to payment methods provided by traditional financial service companies.

Holding on to customers is also a daunting task. One day a company meets the needs of its consumer, the next it fails miserably, often because the consumer changes his or her mind and the company is unable to keep up with the ebb and flow of choices available to its consumers.

“Relevant relationships” is how leading one-to-one marketing group Peppers & Rogers™ defines the ways in which consumers now interact with companies. Until approximately 1990, companies invested in mass marketing strategies risking a decrease in customer attention spans and media fragmentation. As a result, response rates for new customer acquisitions plummeted.

To counteract the declines direct marketing departments and companies embraced more targeted marketing that focused on building various predictive models that forecasted the likelihood of a consumer taking a particular action.

Given all these maneuvers in the marketing and direct marketing industry, transaction account direct mail response rates, for example, were flat at 0.6%.[2] The decreased response rates created lost revenue, shifts in corporate spending and for some companies, bankruptcy.


Product enhancements started with the emergence of the payment and credit card industry in the 1960s. Companies included special benefits such as travel insurance to encourage the use of credit cards versus the use of billed accounts, cash or checks. 

The financial services industry was an early leader in this field as it sought to attract travel and entertainment charges and to justify the annual fee on its accounts. Companies, such as banks, associations and credit unions, provided insurance benefits to customers covering air flights and luggage. Specialty call centers provided emergency assistance to help customers when they encountered problems or needed medical attention during their travels. 

Enhancement Product and Service Timeline

Business PhaseRelative ProfitabilityProduct Priority
Phase I (1970s) Low Fee-based Offers
Phase II (1980s) High Core Enhancement Programs
Phase III (1990s) Decreasing Fee-based with Optional Targeted Benefits
Phase IV (2000+) Low Broader Array / Delivery Realities

Cost / Revenue Focus

In the 1980s competition heated up as financial institutions devised special benefits to attract hard-good purchases from credit cards issued by banks and independent retailers. Bank marketers tried to attract the market share of high volume transacting business. Individual account issuers started to issue their own branded premium programs like the Chase Manhattan™ “World Card” to compete for the business of frequent travelers. These products offered enhancement benefits to position their accounts as competitive with those offered by American Express™.

The transaction account payment networks developed their own premium card programs consolidating the individual products offered by participating issuers into common brands that could be advertised as a consolidated as a brand. At this time, only the very largest banks had quantities of customers and market share that made national television advertising efficient. To improve loyalty, bankcard greeted customers as “Cardmembers” in order to emphasize a club-like relationship. Later, a tier of even higher benefit products such as “Titanium” cards were issued to further differentiate card products and promote higher levels of service and sense of exclusivity among elite customers.

The 1990’s began the era of consolidating hundreds of significant transaction account issuers into a handful of large national issuers. The trend towards national banking was desirable in order to increase markets for products, spread risks over larger numbers of customers, and to take advantage of the increasing efficiency in bank processing of accounts and transactions. Issuers sought to utilize the economies of scale that found from advances in the data processing industry. Large outsourced processors added capacity that could handle much of the industry requirement. Profitability per account decreased because of competition for new accounts, and the removal of annual fees.

Y2K Concerns

In the late 1990s, concerns emerged about the need to upgrade account operating systems, specifically transaction processing. There was a considerable fear in the years leading up to 2000, that the world wide system of computers supporting banking and other industries might shut down because outdated programming was not prepared to process a four digit year or one starting with a two (2). Some issuers were concerned that they could not afford to reprogram their systems in time to avoid this problem and decided to sell off their portfolios.

To compensate for increasing price competition, issuers then converted some lower level accounts from “Free” enhancement benefits to “Fee” programs. This happened most often on base level accounts with lower levels of transaction activity and higher levels of credit risk. Customers already utilizing enhancements benefits such as a travel service received the opportunity to continue using the service on the complementary terms for a period. These accounts then received the option to convert to the “Fee” service at the end of the “Grandfathered” period. Issuers were mindful of avoiding a perception of “Bait and Switch” tactics by being generous on the terms of the “Free” benefit extension.

Smaller Businesses Find Success 

Thousands of credit unions and others in the new breed of local commercial banks have been able to offer products competitive with national issuers. They are able to do this utilizing the product configurations offered by the payment networks, which include enhancement benefits that are consistent across all issuers. This has allowed the smallest credit union to benefit from the national advertising from the larger payment networks.

Mindful that customers were also using checks and debit cards for a variety of purchases, companies offered enhancement benefits such as merchandise protection to customer accounts. Some notable “Cash Management Accounts” from investment companies have added enhancement benefits to encourage use of their accounts for purchase transactions rather than simply using the accounts to make deposits or pay bills.

Increasing Use of Enhancements

The highly consolidated market for consumer bank products and regulatory reforms on pricing are encouraging issuers to justify higher levels of fees with additions of special benefits. Other industries are following the banks in utilizing enhancement programs to increase the performance of their programs. Cell phone marketers are offering enhancement benefits to support customer loyalty. They are looking to the day that “Smart phones” will directly facilitate purchase transactions. Cable television and Internet marketers have used enhancements to both attract and hold on to customers for their varied service offers.

Effective Enhancement Uses: Acquire, Activate, Retain

The transaction account business, for example, has literally tens of thousands of issuers and most provide the same service. Prior to the past ten years, there were literally hundreds of large transaction account issuers and thousands of credit unions and savings and loans who offered varying transaction accounts from debit and credit cards to basic checking accounts. The largest banks used enhancement programs to differentiate themselves when they tried to acquire customers. Companies often tried to out-do each other by adding extraordinary benefits to their upscale accounts in an attempt to claim “Competitive Superiority”.

The list below provides some of the reasons that Enhancements bolster acquisition and retention marketing efforts:

1. Avoidance of Price Competition: Almost all credit cards provide access to making purchases up to the credit limit at merchants accepting their association brands throughout the world. That is the core service, it does not matter if the card account being used is the most basic or issued by a credit union, payment network membership provides worldwide access. Although consumer banking has consolidated, customers still have choices where to receive their bankcard. Adding Enhancements benefits to accounts provides a means to promote various levels of services that can be used to justify annual fees.

2. Advertising, provides communication points: Enhancements often provide an account issuer with something new to talk about. One financial services corporation ran a memorable broadcast ad in the 1980s showing a baby shoving oatmeal into a new VCR. The merchandise protection enhancement program offered at the time would take back or replace broken items bought on that type of account. It was a memorable ad and caused most other issuers to provide a similar benefit on their accounts. The company positioned its card account from the start as servicing the business traveler. It loaded many enhancement benefits to encourage airline tickets, car rentals, hotels and dining charges to be added to their account.

3. Support Annual fee or other types of fees: Some financial institutions charge an annual fee to its customers as a major source of revenue. American Express™ was at a disadvantage because their card was not accepted in as many locations as bankcards and they did not have interest income as a source of revenue. To compete they devised a substantial list of enhancements benefits to offer including insurance for airline trips, baggage, car rentals, merchandise protection, warranty extensions, and concierge service. The cost of these benefits were a small portion of the annual fee but served to considerably increase the perceived value of the account.

Transaction Account Providers have used enhancement benefits in the same way to support annual fees especially on elite premium card products. In some cases marketing discussion have debated whether it is better to offer an affinity credit card with a special enhancement theme package or is it better to sell a more extensive version of the enhancement package as a fee service program to all marketable accounts.

4. Match Benefits of Competitive Offers: For issuers the norm for base and many lower level premium accounts became a No Fee offer with revenue expected from revolving credit generated interest. Like features on luxury cars, enhancements provided issuers a means to compete based on providing increasing numbers of benefits to elite customers.

Frequent Flyer Statistics  (, February 2010)  Jan. 2006 - As the yea

5. Supports Image of Enhanced Lifestyle: Most transaction accounts historically were sold through the mail. Enhancement benefits have provided themes for “Teaser Copy” on the outside of the envelope or for stories to tell in the inside materials designed to create urgency to fill out the form and mail it off to open the account. Financial Services executive, Dave Hill, of American Express™ and later Chase Manhattan™ once said, “The credit card offer must create the image of the improvement to lifestyle that opening the account will bring”. Reward programs such as airline point programs have been the subject of much advertising to not only open accounts but attract more and more transactions to an issuers account. Now on the Internet, enhancements provide the opportunity for bright visuals about the purchasing power and security a transaction account can bring.

6. Attract Transactions: Issuers are always trying to encourage customers to use their card for transactions versus other payment options that may have including cash. Attracting “High Ticket, Hard Goods” transactions have always been a priority. Often customers choose to not pay off the entire account balance and utilize the account for financing. In some cases issuers needed to compete with private label cards offered by stores. The introduction of various purchase protection and warranty extension programs provided a strong means for issuers to encourage purchase of high-ticket electronic items.

7. Attract Reoccurring Transactions: One of the great ways to build persistency and revenue on accounts is to have regular transactions billed to the account. This could be a monthly cell phone bill or regular gasoline purchases. Enhancements were designed to attract this business by providing benefits such as lost cell phone replacement if the monthly charges were billed to the account. Another innovative enhancement program designed to attract routine transactions and brand loyalty replaces tires if a specified number of gasoline purchases are made on the issuing account at stations of the sponsor.

8. Support Conversions and Upgrades to Higher Level Accounts: Issuers are frequently coming up with new account programs with new services and added benefits. In some cases they may have incentives that get customers to move to these accounts such as charging an annual fee or preferred operational arrangements for processing transactions for a new classification of accounts. At other times issuers may want to eliminate a card type and convert existing customers into upgrades.

The challenge with converting a customer is it may encourage them to consider alternatives from other issuers since they are making a move. Enhancement programs are frequently provided to customers when they agree to a conversion or elect to accept a higher-level account type. The enhancements could be ones provided with the new account or they could be provided as individual incentives for making the switch. An example would be a retail gift or airline companion ticket certificate mailed to a customer who has agreed to a conversion to a new account. Often the enhancement certificate is sent to the customer once they have used the new account for a particular transaction.

9. Create Sense of Exclusive Club like Service: American ExpressÒ was one of the leaders in the concept of treating customers as if they were members of an exclusive club. Diners Club™ did the same but its narrow travel and entertainment focus limited its growth. Issuers tried to emulate the Club concept. Chase™ always referred to customers as “Cardmembers”. To reinforce this positioning elite services such as concierge service, invitations to special events, airline lounge access, and opportunities for travel two for one tickets and seating upgrades. Some issuers have special customer service lines available for premium customers so that they have minimal wait time.

10. Alternative to More Expensive Plans: Offering “Cashback”, airline points, or a variety of other “Reward” offers can be very expensive and can considerably extend the time on file required for the covered accounts to generate a profit. A sizeable segment of customers may prefer to have a “No fee” card offer that supports their primary account uses of travel or hard good purchases. For these customers who want the basics with a few extra touches, enhancement benefits can provide a strong but cost effective acquisition or retention offer.



Enhancement programs are not only for financial institutions. Employers recognize the benefits of providing rewards to employees and many have started offering Concierge Services, for example, as a means of rewarding employee performance.

  • 68% of respondents stated that the concierge service has enabled them to be more productive at work.
  • On average, the concierge program has saved employees up to 10 hours of personal time.
  • 64% responded that the program has made them more loyal to their employer.


Types of Enhancements

Several types of Enhancements exist for several different uses, industries and applications. The list below provides a quick summary of the categories of Enhancements used most frequently today.


Emergency Travel Assistance: A club like benefit that appeals to frequent travelers is emergency travel assistance. Helps customer with several travel type emergencies such as passport replacement, airline ticket replacement and lost items.

Auto Rental Collision Damage Waiver: Protects customers for their car rentals secured with a covered account. Allows the cardholder to waive the retail coverage sold by the rental agency and save as much as $17 per day. Coverage typically applies to exposure that personal policies do not cover.

“Road and Tow” Service: Provides Toll-Free access to a reliable tow operator or locksmith with complementary service or pre-negotiated rates depending on offer. Configurations may include tire changing, jump-starting, lockout service, fuel delivery. Can include traveling instructions and maps customized to provide direct or scenic routes.

Common Carrier: Provides automatic protection life insurance coverage every time a covered account is used to buy travel tickets.

Discount Airfare: Air Checks in $50 denominations can be provided to eligible accountholders to be used as a credit on airfare purchases.

Companion Airline Ticket: Sponsors can offer to purchase a “Companion Airline Ticket” when a qualifying ticket is purchased on a covered account for designated destinations.

Hotel Discounts: A variety of programs provided preferred discounted rates to a wide range of hotels from basic to five star resorts around the world. Ranges of program offers are presented in print and on-line.

Restaurant Discounts: Enrolled customers can be offered an extensive list of restaurant values including two for ones both in their residential areas and travel destinations.

Airline Lounge: Accountholders receive access to more than 500 private airport lounges around the world in order to make their time in airports more comfortable or productive.

Lost Luggage: Reimburses customer for the cost of replacing an account holder’s checked or carry-on luggage and its contents.

Emergency Evacuation & Transportation Coverage: Provides coverage for emergency transportation or medical evacuation that is required as the result of an injury or illness experienced on a trip paid for with an eligible account.

Trip Cancellation: Reimburses the account holder for prepaid travel expenses charged to the card account if unable to travel on the ticketed date.

Trip Delay: Accountholders are reimbursed the cost of and lodging when they experience a delay during travel. Travel must have been purchased with the covered account.

Purchase/Transaction Support

Purchase Security: Will replace, repair, or fully reimburse purchases made on covered accountholders up to a specified maximum, if eligible purchase is stolen, or suffers covered damages within a defined period after purchase.

Extended Warranty: Doubles the length the original manufacturer’s written repair warranty typically for a year to a maximum specified amount. Can provide additional valuable features including warranty registration and extended service agreements of up to 5 years.

Warranty Registration: Stores, retrieves, and provides assistance required to allow for full advantage of warranty coverage. Includes offer of extended service agreements that can extend warranty protection up to five years and generate revenue for the account issuer.

Lifetime Warranty: Extends the term of the product manufacturers warranty to the expected service life of the item purchased with a covered account. Expected lifetime of most major retail items is established by third party industry publication. Example: Refrigerator purchased with a covered account would be warranted for 9 years.

Price Protection: Protects customers against not making purchase at lowest price. If customer locates an advertisement for the identical item at a lower price, benefit program will refund the difference.

Home Repair: Referral program for electricians, plumbers, and other home related contractors. May also include “Ask The Expert” service where eligible accountholders can speak with experienced contractors to get answers to home service questions, review quotes, gain home improvement suggestions, etc.

Fuel Purchase Incentive Benefit: Program designed to encourage recurring fuel purchases on the covered account. Benefits include: Auto Insurance deductible refund, Tire road hazard protection, and overnight expense reimbursement Coverage provides cell phone protection at no cost to the cardholder, as long as the monthly cell phone bill is paid with the card account.

Cell Phone Billing Incentive Benefit: Eligible account holders are protected against damage, theft, or mysterious disappearance of cell phones that are listed on the monthly wireless service bill that is charged to their bank card account. Coverage includes cell phones belonging to family members that are also listed on the wireless bill charged to the account. Sponsor promotes coverage to all account holders, but only pays premiums for those account holders who actually use their card to pay for the monthly wireless service.

Lost/Stolen Wallet Service: Real time assistance with credit, debit and charge card cancellation and replacement. Configurations can include: Personal Identity Theft assistance, emergency message relay service to contact relatives, friends, or business associates and relay messages between parties, assistance with the replacement of personal identification (drivers license, passport, etc.) and emergency cash assistance benefit.

Special Services

Concierge: Another “Club Like” service benefit that can provide customers with information and referrals to a wide range of topics such as restaurants, visa and passport needs, hotels, mapping, car rental, and limousines, Health Club information, sports, business services, shopping, etc.

Emergency Card Replacement: Benefit program provides 24-hour emergency services, seven days a week, to enrolled customers around the world. The service arranges for emergency card replacements and cash disbursements.

Personal Identity Theft Protection: Provides assistance and monetary reimbursement for costs incurred by correcting an identity-theft occurrence involving the criminal use of a person’s identity obtained through their social security number, credit card numbers, or other forms of identification.

Below is a brief overview and description of each type of identity theft, based on Federal Trade Commission complaint data:


Credit Card fraud (26%): Credit card fraud can occur when someone acquires your credit card number and uses it to make a purchase.

Utilities fraud (18%): Utilities are opened using the name of a child or someone who does not live at the residence. Parents desperate for water, gas, and electricity will use their child’s clean credit report to be approved for utilities.

Bank fraud (17%): There are many forms of bank fraud, including check theft, changing the amount on a check, and ATM pass code theft.

Employment fraud (12%): Employment fraud occurs when someone without a valid Social Security number borrows someone else’s to obtain a job.

Loan fraud (5%): Loan fraud occurs when someone applies for a loan in your name. This can occur even if the Social Security number does not match the name exactly.

Government fraud (9%): This type of fraud includes tax, Social Security, and driver license fraud.

Other: (13%)

Small Business

Travel Programs: Many consumer travel programs can be utilized as business enhancement programs, sometimes with higher-level service provided. 

Discounts: Special values on the purchases that businesses make most often such as: office equipment, computers, software, travel & entertainment, etc.

Liability Waivers: Eliminates the responsibility of a commercial card client company to pay for non-business related transactions made by an authorized cardholder.

Computer Repair: Provides access via toll free telephone line to computer technicians who can assist customers with a wide variety of problems, with computers, laptops, printers, Personal digital assistants, cell phones, cameras and other related equipment.


There is no doubt that the introduction of airline point programs changed the business. These programs generally provided one point in an airline for dollar spent on the account. Frequently Business travelers began to place more than trip charges to airline cards. Common stories in the 1990s spoke of small business owners buying their inventory or parents placing their children’s college tuition on airline credit cards simply to earn points.

Issuers have to be careful when they make arrangements with the airlines to buy points and place them in the customer’s points account. The concern for the business is if interchange and other account revenue will cover the cost of purchasing the points from the airlines. Banks, for example, which depend on interest revenue from revolving credit were concerned that business travelers paid their bill off monthly generating no interest at much higher rates than consumers. This forced some airline point issuers to implement annual fees or place dollar limits on the number of points that could be earned each year. As the fortunes of many airlines struggled and the need to place priority on paying passengers, limits were often placed on limits on the number of point program tickets they would redeem per flight and especially to popular holiday destinations. In some cases the number of points needed to redeem for tickets were increased and fees added for ticket issuance.

The limitations placed by airlines on their own programs diminished the value in the minds of customers, frequent travelers, and even issuers. A remedy emerged which is for points to be earned on customers statements for purchase made, but the tickets earned individually purchased by travel agencies working for the program. This would allow airline point ticket limitations to be avoided, the challenge continued that holiday flight tickets were expensive for the programs to purchase. In most recent years, airlines have placed limits on the amount of time customers can hold onto tickets.

Cash Back

Sears™ and Dean Witter™ brought an innovation to the financial services industry when it launched a cash back offer on its Discover™ card accounts in the mid-1980s that paid back to a customers account 1% to 2% of the value of the transactions billed to the card. The “cashback” offer proved surprisingly popular as not everyone was interested in airline programs or expected to generate enough transaction activity to earn a free airline tickets. This offer resonated with many customers who liked the idea of being able to receive a check back at the end of the year even if was a small amount. Like airline cards, the cash-back offer cut into issuer revenues. Unlike airline card programs in which it is expected that a significant number of points will never be redeemed, there is little breakage when cash is promised as the incentive.

Cash back worked for Discover™ because they were a late entry into the booming credit card market of the mid-1980s and it appealed to the value orientation customers of Sears Roebuck™ expected. DiscoverÒ made the business grow by effective cross selling of the program to the Sears™ private label customer file. Profitability came from success in managing their loan losses.

Enhancements In Use Today

With technological advances enabling the success of Paypal™, Google™ and Mobile SpeedPass™, for example, competition with traditional financial services transaction account providers continues to increase. Consumers now have numerous means to transact for purchases of goods and services as never before.

Because of the multitude of choices, the need to differentiate becomes even greater and therefore the role of enhancements becomes more vital.

Corporations even realize that maintaining a competitive pool of human resource talent requires offering more than a competitive salary and are in fact, looking to enhancements as a means to increase productivity and loyalty among employees.

Retail establishments now offer branded stored-value cards (e.g., Home Depot™, Dick’s Sporting Goods™) designed to create a more direct connection with the consumer. To increase that loyalty quotient, those companies are also adding enhancements to their own branded transactions tools.

Enhancements themselves continue to grow and evolve with the changing marketplace. As cell phone adoption increased, so to did enhancements for such products. Cell phone insurance is one such example. The need for custom enhancements is growing more rapidly as companies now create specific products and services designed to increase one-to-one relationship opportunities. The types of enhancements today is limited to the creativity of the inventor or the demand in the marketplace.

About the Author

Mr. Kraetzer has specialized in direct marketing of financial services for over twenty years. In addition to his work at CBSI, he serves as an adjunct professor in the Direct Marketing Master’s Degree program at Mercy College, and is a frequent trade writer and speaker.

Mr. Kraetzer supervises Direct Responses programs and services provided to clients including strategic planning, forecasting, reporting, lifetime value analysis, database modeling, creative development, and telemarketing. Prior to CBSI, he managed credit card insurance programs for the Chase Manhattan Bank™, promotion and sales lead generation programs at Dean Witter Reynolds, Inc.™, customer targeting services at American Express™, and marketing data services for Herbert Dunhill & Associates™Ò.

Mr. Kraetzer is a graduate of Providence College in RI, and holds an MBA from the Hagan School of Iona College. He has also participated in international studies programs at Jesus College, Oxford, and Leuven University, Belgium.


[1] Credit, “Credit card statistics, industry facts, debt statistics”, by Ben Woolsey and Matt Schulz
[2] Synovate Mail Monitor report. 2008
[3] WFC Resources, January 2010 (, “The Latest Trend in Benefits: How Concierge Services can Improve Your Company's Bottom Line.”