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National Research University Higher School of Economics

Institute for Statistical Studies and Economics of Knowledge

MASTER THESIS

Bank Loyalty Reward Programs: Win-Win Partnership between Banks and E-Travel Companies

Student: Inna Savelyeva

Group: МУН 181

Supervisor: Konstantin Vishnevskiy

Moscow, 2020

Table of Contents

bank loyalty travel program

• Abstract
• List of Abbreviations
• List of Tables
• List of Figures
• Introduction
• 1. Literature review
• 1.1 Bank Loyalty Reward Programs
• 1.1.1 Customer loyalty
• 1.1.2 Customer loyalty reward programs
• 1.1.3 Types of reward schemes
• 1.2 Challenges of building bank loyalty programs
• 1.3 E-travel companies as partners of bank loyalty reward programs
• 2. Methodology
• 2.1 Descriptive analysis of Russian bank loyalty programs with travel rewards
• 2.1.1 Research design frame
• 2.1.2 Data collection
• 2.2 Case studies on Russian bank loyalty programs with travel rewards
• 2.2.1 Research design frame
• 2.2.2 Selection of cases
• 2.2.3 Data collection
• 2.3 Semi-structured interviews with field experts
• 2.3.1 Criteria for selection of experts
• 2.3.2 Questionnaire development and interviewing process
• 3. Results
• 3.1 Bank loyalty travel reward programs in Russia
• 3.2 Benefits from partnerships between banks and e-travel companies
• 3.2.1 Experts
• 3.2.2 Results
• 4. Discussion
• 4.1 Benefits for banks
• 4.2 Benefits for e-travel companies
• 5. Limitations and implications
• Conclusion
• References
• Appendixes


Abstract

Nowadays, customer loyalty management is experiencing an increasing attention from the side of banking industry. Enforcing by the necessity to retain existing clients and to attract new audience, modern financial institutions design and implement a variety of loyalty programs with rewards as well as continue to innovate the existing ones in order to respond to competitors' strategies. At the same time, introduction and maintenance of these projects are usually linked with the range of challenges, among which are the need to provide a variety of valuable rewarding incentives, to construct technological platform, to promote them both internally and externally as well as to cover expenses for all these activities. In this paper, the author studies partnerships between banks and e-travel companies with the aim to extent the knowledge of how attraction of partners may contribute to solving or mitigation of outlined challenging aspects. In contrast to the existing academic literature, our research focuses primarily on technological collaborations realized in format of development and support of platforms providing programs' participants with journey-related offers for bonus redemption. Conducted descriptive analysis and case studies makes possible to conclude on high demand from banks in Russia on performing loyalty programs with travel bonus rewards as well as to identify patterns and peculiarities of their realization. Moreover, the results of interviews with field experts demonstrate the existence of possible benefits for financial institutions in terms of saving money, time and people resources on travel platform's development; customer, technological and marketing support; co-funding of higher rewards and promotional campaigns, etc. Besides, the projects are also concluded to be beneficial for e-travel partners through potential growth of sales, brand awareness and ability to enter new markets. All in all, technological partnerships between banks and e-travel companies are become win-win collaborations bringing a range of benefits for both parties.

List of Abbreviations

API - Application programming interface

B2B - Business-to-business

B2C - Business-to customer

DIY - Do-It-Yourself

IT - Information technology

FI - Financial institution

LP - Loyalty program

OTA - Online travel agency

UK - United Kingdom

USA - United States of America

List of Tables

Table 1: Structure of gathering data for descriptive analysis of LPs with travel rewards

Appendix 1: Data on bank loyalty travel reward programs in Russia

List of Figures

Figure 1: How would you like your services to be delivered?

Figure 2: Individuals using the Internet, world (% of population)

Figure 3: Scheme of how to identify the kind of bank loyalty program with point-based travel rewards

Figure 4: Structure of market of bank loyalty programs with travel rewards in Russia

Figure 5: Banks' preferences for implementation of LPs with travel rewards which are not specified to separate travel bankcard(-s)

Figure 6: Statistics on a number of types of bank LPs with travel bonuses applied simultaneously

Figure 7: Distribution of loyalty travel reward programs implemented by leading banks in Russia

Figure 8: Shares of e-travel companies' partnerships on creation of travel websites for leading banks in Russia

Introduction

Nowadays, business environment is experiencing an extensive development of the area of customer loyalty management. Heightening competition within the majority sectors of economy stimulates market players to focus more on consumer retention and enhancing profitable behavior of their existing clients (Magatef & Tomalieh, 2015). In order to prevent customer's switch to competing goods and services as well as to attract new audience (Spradlin, 2016), a variety of loyalty programs with rewards are currently launching and conducting by companies worldwide (McCall et al., 2010). Moreover, the growing interest towards that area of marketing activities provokes not only the emergence of new projects, but also forces businesses to improve and innovate constantly with their LPs in order to respond to competitors' strategies and to stand out from their LPs (Szыts & Tуth, 2008). That is why the field of knowledge about customer loyalty programs currently attracts an increasing interest from both academic and business sides.

Banking industry was one of the early adopters of loyalty programs, and the classic example was and remains the introduction of bankcards which allow their holders to accumulate rewarding miles of one of the airline companies (Ching & Hayashi, 2010, p.8), which also were among the inventors of LP stream (Magatef & Tomalieh, 2015). Modern FIs' managers deal with a number of challenges when planning and realizing projects aimed to influence positively customer loyal attitude. Some of them have been covered by researchers within their academic papers, for instance, lack of customization opportunities and weak variety of rewards (Plozay & Bohn, 2008; Szыts & Tуth, 2008), covering expenditures on program's realization (Plozay & Bohn, 2008, Kumar & Reinartz, 2018), technological aspects referred to ease of reward accumulation and redemption (Magatef & Tomalieh, 2015; Babrovich, 2017), as well as consumers' need for user-friendly interface of provided LPs' platforms and their ability to be delivered from a variety of desktop and mobile devices empowered by worldwide digitalization trend (du Toit & Burns, 2016).

However, the existing academic papers dedicated to the topic of bank loyalty programs still remain rather scanty. Besides, their authors almost do not focus on partnerships between banks and other industry merchants which are already performed on the market and could potentially be a solution or mitigation to challenges mentioned above. Due to that reason, we are going to contribute to filling that gap and are realizing the study aimed to identify mutual benefits of collaborations between banks and e-travel companies since tourism-related bonuses are one of the popular format of performing bank LPs with rewards nowadays. Here and further by `e-travel companies' we mean IT businesses specialized in aggregation and selling online diversified touristic services (as airline flights, railway tickets, hoteling accommodations, car rentals, etc.) from a variety of supplier through the development of the technological platform to represent these offers.

In order to answer the question of what are the beneficial outcomes for both banking organizations and e-travel companies to partner on performing loyalty program with tourism-related rewards to FIs' customers, we stated the following objectives: 1. to identify a range of challenging aspects which influence bank LPs' design, introduction and maintenance, 2. to detect existing types of LPs with travel point-based rewards, to conclude on whether them are in demand among retail banks in Russia and whether there are any patterns and peculiarities of their implementations, 3. to identify benefits which FI may receive from attracting e-travel company to develop the platform for bonus redemption, 4. to determine beneficial aspects for e-travel company from participating in those collaborations with banks. As far as this study is primarily focusing on the technological partnership between FIs and e-travel businesses, we are not going to research the efficiency and results of these loyalty programs' existence.

The paper consists of introduction, five sections in the main body and conclusion. It starts with the introductory part in which the research question, objectives and structure are described, and proceeds with the part which explains research methodology. Then the review of relevant literature is realized covering the area of bank loyalty programs construction, possible challenging aspects and e-travel companies as the partners of the projects under consideration. After that the results are described and discussed within the homonymous sections, and followed by the part considering study's limitations and implications. The paper is ended with the conclusion which summarizes and presents main outcomes received during the research process focusing mainly on observed programs' being in demand and identified benefits for both banking organizations and e-travel companies from collaborating on the provision of bank LPs with tourism-related rewards.

We believe that our study will have important applications for academic researchers from the field of customer loyalty management, for banking organizations which are interested in extending their loyalty programs' portfolio or innovating already performed projects, for e-travel companies considering the development of business-to-business direction via partnering with banks.

1. Literature review

1.1 Bank Loyalty Reward Programs

1.1.1 Customer loyalty

Customer loyalty as a field of knowledge has begun to attract more or less focused and systematic interest from the researches' side since the mid-20^th century, and over the last decades it has been covered extensively within the contexts of various industries and aspect as well as, nowadays, it still proceeds to attract growing attention (McCall et al., 2010). The phenomenon of customer loyalty is defined as the consumer's attitude and behavior towards one brand or company expressed in the willingness to purchase its products and services over those ones of the same or comparable quality which competitors offer at the market (Singh & Khan, 2012). In his work Oliver (1997) underlines that loyal consumer expresses deep and confident commitment to re-buy or re-patronize exact preferable product, despite those marketing efforts and situational influences which could potentially cause switching behavior. Thus, these customers are considered to repeatedly purchase a product or service and less likely to be lured by competitors attracting activities (Tweneboah-Koduah & Farley, 2016). Besides, customer loyalty towards the firm or institution is also accompanied with insensitivity to some occasional errors or indifferent service (Szыts & Tуth, 2008).

The significance of customer loyalty for organization's profitability could not be overemphasized. These clients are assumed to burden company with lower level of servicing costs and to be less sensitive its price changes (Dowling and Uncles, 1997). They are more likely to try new products and accept cross-selling offers (Bain & Company, 2012) what means that such customers would probably spend more with the preferred company. A slight increase in customer loyalty may cause significant improvement of business profitability (Tweneboah-Koduah & Farley, 2016), so even 5-percent increase of loyalty can raise profits by 75% (Singh & Khan, 2012). One more benefits from maintaining loyal consumers is their willingness to pass with positive recommendations on eligible goods and services to their friends and family (Yoo & Bai, 2013) what works as a word-of-mouth tool of bringing new clients.

According to Dowling and Uncles (1997), the costs on retention of existing consumers are generally less than expenses of acquisition of new customers, hence, and due to the reasons mentioned above it is crucially important to firm to develop the plan and take steps to encourage loyalty of their clients as well as to allocate budget in order to performs activities targeted to reach that goal. Thus, the topic is gaining more and more interest from both academic and business sides.

1.1.2 Customer loyalty reward programs

Looking back to the history, the concept of customer loyalty programs can be tracked at least as long ago as the nineties of 19th century when Sperry and Hutchison (S&H) introduced the Green Stamp program realized as the distribution of `green stamps' through retailer to customers brand's goods in order to encourage client's patronage and reward them with the variety of products from special S&H catalogue on which the collected stamps could be redeemed (McCall et al., 2010). Almost 85 years later, in 1981, one the first contemporary customer reward programs were launched by American Airlines and, thus, the era of active and widespread development and implementation of LPs' among different spheres and companies has begun (Magatef & Tomalieh, 2015).

Customer loyalty programs are a structured variety of marketing efforts that reward and, thus, encourage loyal buying behavior which is considered to be beneficial to the company (Sharp & Sharp, 1997). According to the classical approach, LP are not the short-term promotions, but the complex projects which require long-term commitment and funding (Dowling and Uncles, 1997) from the side of business which implements it.

In their study Magatef and Tomalieh (2015) state that loyalty reward programs `are offered by a company to customers who frequently make purchases' and are able to encourage such a client with `advanced access to new products, special sales coupons or free merchandise' as well as `points, rebates, discounts or combination of then' in order to retain its best consumers, to make them more loyal to firm and, thus, to receive all those benefits which customer loyalty brings to business. The accumulated points are redeemable and can be than converted into gratuitous services, various upgrades and exchange to other goods. It is also interesting to add that, according to the research of Dorotic, Verhoef, Fok and Bijmolt (2014), the redemption experience influences positively the behavior of LP's members stimulating them to collect more points via increasing their expenditure. That means that customer's engagement in loyalty program grows when they gain first rewards from participation in LP what is supposed to make them even more loyal and profitable to firm.

Banking industry has become one of the early adopters of loyalty programs, and the classic example was the introduction of cards which allow their holders to accumulate rewarding miles of one of the airline companies (Szыts & Tуth, 2008). With the significantly increasing use of bank cards as an electronic method of payment observing during the recent decades, the financial industry has started to experience large competition among financial institutions (Subramaniam & Marimuthu, 2010), so, nowadays, the majority of banks are facing the necessity to advance constantly in their services and, hence, are trying to attempt to comprehend the needs of their customers and to enhance their loyalty via special loyalty programs implementation (Beyroughy, 2019). Since LPs are long-term commitments on the part of financial institutions and due to that FIs offer a range of various products and services to their clients as well as spend efforts and time to upsell and cross-sell them, in their loyalty-oriented projects banks are supposed not to focus on a single product or service but to develop the total relationship with their consumers (Szыts & Tуth, 2008). That is why many FIs expand their loyalty reward programs to the upper than one product level and give the opportunity to the majority of their customers to participate in one or another extent within the developed LPs.

One more reason of modern popularity of bank LPs and their widespread implementation is that such a tool works not only for enhancing loyalty of existing bank's clientele but also allows FIs to attract new audience and penetrate new niches if marketed intensively (Beyroughy, 2019). According to Spradlin's (2016) findings, almost four out of five bank customers confessed that they make a choice on their primary bank based on the reward program proposed by that organization as well as about 60% of customers want to raise the number of products they own from their banking provider in order to earn more benefits.

Despite the fact that a lot of aspects which should be taken into account in order develop efficient LP have already been extensively covered in academic studies and are rather understandable, it is not enough for bank as well as for any other company just to design and launch reward program once and do nothing else waiting for positive results. The existing trend of booming loyalty programs forces companies to innovate constantly on their loyalty programs in order to respond to the competitors' strategy and to stand out from their LPs (Szыts & Tуth, 2008).

All in all, the first examples of loyalty programs appeared more than a hundred years ago, however, the period of their active growth and prosperity began a few decades ago and continuous to this days. Banking industry was one of the pioneers in adopting loyalty programs as the marketing tool to enhance their clientele positive behavior via offering rewards to their customers. LPs are considered to be long-term projects which could cover both existing consumers and the potential ones who are choosing their banking provider paying attention to its offered `benefits'. Besides, due to the high competition among banks and the variety of loyalty programs implemented nowadays, financial institutions should to innovate continuously to make their LPs fit clients' needs and answer efficiently to competitors' projects.

1.1.3 Types of reward schemes

Nowadays, plenty of ways of how to construct a loyalty program with rewards are known and already realized within the market: for instance, they vary from bonus points collection which could be later redeemed on purchases of other goods to provision of special partners' rebates or free upgrades in class of services (Magatef & Tomalieh, 2015). Moving closer to financial industry, it should be highlighted that in comparison to the majority of other spheres banks' customers do not need to be supplemented with additional membership cards as generally they are already the holders of banking cards which are additionally used to register in and refer each client to one or another bank's loyalty programs as well as to track his participation. These days being a participant of LPs are available for both debit and credit card owners despite the fact that more than 30 years ago primary reward programs were launched especially for the first type of holders (Ching & Hayashi, 2010).

Designing new loyalty programs or innovating with the existing ones, bank managers take into consideration the following principles: the reward should be valuable to their audience, the project should be developed assuming those alternatives which are already performed by competitors and, thus, try to respond to competitors' strategy and to stand out from their LPs (Szыts & Tуth, 2008) in order to be attractive and competitive. The below frequently implemented schemes of rewarding FI's customer loyalty are described.

Bonus points system

This is one of the most commonly used type of loyalty programs. A client earns points for the transactions made using his bank card, accumulate them and then can translate into some types of rewards like gifts, discounts and others (Magatef & Tomalieh, 2015). For the first time within the banking industry that scheme was applied in 1984 by Diner's Club (Ching & Hayashi, 2010) which offered to collect airline miles to their cardholding customers and then to redeem them to cover expenses on partnering aviation enterprise tickets, and since then bank LPs providing that kind of reward have become very popular. Modern opportunities for the redemption of bonuses are extremely diversified and their range varies from one financial organization to another: some of them allow to exchange earning points into everyday goods and travel experiences (Babrovich, 2017) while others let their cardholders “donate rewards points to organizations, such as charities, alumni associations, or environmental groups” (Ching & Hayashi, 2010). In some cases, banks implement general LPs in which holders of different card products may participate and receive bonuses to spend them on various merchandises and services, in others they prefer to launch focused LPs for exact audience and treat them with specific rewards, for example, when introduce co-branded cards with the partners (Ching & Hayashi, 2010) which then is going to accept accumulations in order to redeem its goods' prices (Reales & O'Connell, 2017). Bonus points schemes are so popular mainly due to the fact that they are considered to be able to “lock in” a consumer via offering an accumulating benefit and, thus, are designed to heighten the switching costs to the client over time (Dowling & Uncles, 1997).

Cashback system

That type of loyalty program reward logic is also widely used by financial institutions nowadays. The idea of the scheme is that customers receive a little part of the sums spent on purchases which were made using bank's credit or debit cards back to their accounts (Plozay & Bohn, 2008). According to the developed LP's rules, these `cashbacks' could be returned directly to the balance and, hence, be able to be used for further shopping or be technically accumulated and used to compensate previous clients' expenses. That scheme has become to be implemented in baking industry in early 1990s, and as the competition for cardholders has started to be more intensified, these programs have become more diversified and more generous (Ching & Hayashi, 2010). In order to present more value to bank clients cashback LPs could be “designed to offer personalized cash rewards tailored to the unique shopping preferences of customers” (Babrovich, 2017) returning increased percent from such purchases/category (which such purchases are related to) in comparison to other ones (Ching & Hayashi, 2010).

Discounts

One more scheme which FIs utilize to reward clients for using their cards is to give them the access to a number of various rebates. The discounts generally could be divided into two types: the first one (Spradlin, 2016) is when the bank maintains partnership relations with goods and service producers and retailers and provide its consumers with different discounting opportunities and special offers, for example, those from relevant local merchants. In that case, customers save their money with their FI which identified discounts for their daily life and needs, what influence positively people's attitude and loyalty towards their bank as well as may increase transactions with the use of its cards. The second way, according to Babrovich (2017), is when the financial institution tries to stimulate consumers “to do more business with them by introducing discounts in case of purchasing additional financial products and services. For example, for the most active customers Wells Fargo offers lower loan rates on car and student loans, while at TD Bank customers can receive special rates on savings accounts as well as discounts on mortgages, home equity lines of credit and unsecured loans”.

These thee reward schemes are the most widely implemented nowadays within the bank loyalty programs. However, the FI may also combine easily several types of them in order to suite better its customers' needs and satisfy their aspirations in order to make LP more efficient in terms of the achievement of its goals. In addition to the traditional kinds of rewarding clients' loyalty, banks are able to move forward and innovate their programs by adding such mechanics as `tiers': the little rewards are offered as a base for participating in LP, and the repeat consumers are encouraged by raising the value of the gains as the client moves up the loyalty ladder (Magatef & Tomalieh, 2015). By offering differentiated (tier-based) rewarding schemes, company also becomes able to thank additionally its really best customers via the greatest rewards (Kumar & Reinartz, 2018). Besides, the reproduced purchases could be not the only criteria to achieve higher tier, the FI may also introduce the mechanics of gamification when, for example, in order to move to the next level of rewards the customer is required to pass a number of attainable tasks such as to try new bank's product, to increase the amount of online transactions, etc. That technique (Spradlin, 2016) is supposed to enhance further the consumer experience and to increase program adoption. According to Kumar and Reinartz (2018), the modern generation of LPs is tending more and more to integrate the elements of gamification in the reward structure and, thus, move away from static incentives towards rewards that are smarter and dynamic, what allows not only to encourage clients' loyal attitude but also influence their positive behavior.

All in all, contemporary banks are attempting to increase customer loyalty and retention and to attract new consumers via launching LPs with different kinds of rewards, among which are bonus points collection, cashbacks, variety of discounts on FI's services and partners' offerings as well as via adding those techniques as tiers and gamification. Due to the highly competitive environment just to launch such a program is not enough and banking organizations need to improve constantly and even innovate with their LPs in order to make them more attractive and valuable for the participant and potential new comers, in general, as well as in comparison to competitors' projects.

1.2 Challenges of building bank loyalty programs

Nowadays, due to the intensive competition among banks and growing volume of electronic payments, the need for keeping loyal customer on the part of banks is increasing. At the same time, a number of studies dedicated to the topic of loyalty programs within banking industry remains scanty enough. However, there are some of them which are aimed to research different challenges referred to FI's LP projects and, thus, create a base for the further development of that area of knowledge. In our paper, we are going to focus on point-based reward programs, which helps to lock clients in relations with the particular bank, so the challenging aspects outlined below were tried to be identified while taking into account this specificity, if possible.

Rewards' variety and value

Even in 1995 O'Brien and Jones defined the range of choice of rewards (for example, choice of flight destinations) which customer gains as one of the key elements which determine loyalty program's value. A number of more recent studies (Plozay & Bohn, 2008; McCall et al., 2010; Magatef & Tomalieh, 2015) are proceeding to support that points, so the customers' demand on various and valuable rewards for their loyalty could be outlined as one of the challenges in front of the banking LP design and implementation.

At the same time, in their study McCall, Voorhees and Calantone (2010) agree that a variety of possible reward is important for the consumer, however, not all the propositions presents high value for the program's participant. The authors exemplified it as “while customers will almost certainly accept product discounts as a reward for patronage, they may not necessarily place a high value on those discounts…Discounts may actually diminish the value proposition”, so the companies should tend to optimize the value-cost proposition via designing their programs focusing that it contains prizes that are highly valuable by the consumers yet carrying low internal cost (McCall et al, 2010). Considering that the researches oppose monetary rewards and propose firms to present their loyal customers with free use of a services which are usually charged (for instance, fitness facilities, wifi). Despite the fact that their study is focused on the hospitality industry, the conclusion is general enough and could also be applied to LP construction in banking sector.

The similar point of view is also supported in bank-related articles, for example, in their paper Szыts and Tуth (2008) argue that the range of potential rewards is critically important for bank's loyalty program performance because retail banking is the relationship business with two-way street relations between the organization and its clients, so the prizes should be valuable both in general and considering possible differences in customers' perception value. The authors declare that banks already obtain a significant amount of potential rewarding items, however, they do not name any of them.

Modern marketers face the necessity to know how to innovate LPs in order to reflect the consumer's lifestyle and shopping attitudes to keep them loyal to the company and create a lifetime customer (Magatef & Tomalieh, 2015). According to Plozay and Bohn (2008), that paradigm could be reached through the extension of banks' LP rewards with other special offers from everyday merchants in exchange for that they receive the FI's audience to promote their goods and services. However, the authors do not research whether there are any negative effects for banking loyalty program when it begins to be accomplished by other brands presence.

Expenses

As it was already reviewed, loyalty programs are considered to be long-term investment marketing projects. In their study Kumar and Reinartz (2018) identify the expenditure-related challenge which firms face when introducing LP as “providing acceptable incentives to customers while also controlling costs”. They outline the variety of costs referred to loyalty programs' design, implementation and management, among which are expenses on planning and launching the LP (including purchases of soft- and hardware, external consultancy, training of employees, promotional activities), outlay for upkeep of service center, consumer database administration, variable expenditures on rewards, discounts, sales costs (for example, packaging or shipping) and communications. The authors notice that such a kind of marketing projects is generally aligned with high volume of long-term investment, which could frequently be even higher than the returns generated, and because of that the cost management will always be a critical component. With their paper Kumar and Reinartz (2018) propose that “the emerging trend from single-vendor LPs to partnership and mega-coalition LPs may contribute to efficiency profits by mutual sharing of costs across partners” meaning that the loyalty program owner may attract manufactures and service providers from the same (within industry) or another industry (cross-industry) to become its LP partners via offering to the audience any additional rewards for purchasing their goods and servicing activities and, thus, co-funding the variable expenses, making the program more beneficial to customers as well as experiencing the growth of their sales and brand awareness. Thereby, their research identifies various costs which burden company if realizing LP, it states the possible way of their reduction via co-funding from partners, however, it does not cover the technological aspects of partnerships, other approaches to expenditures decrease and does not focus on the banking industry and it peculiarities (if any).

One more study dedicated to the topic of loyalty program expenses was realized by Plozay and Bohn (2008) and was narrowed to the bank sector only. The author claims that classic FI-funded cash-back or bonus-points loyalty programs are losing their value nowadays because bankcard clients are constantly looking for a wider range of rewards and for their bigger size while banking organization already bear significant costs to maintain and raise customer loyalty and, thus, it is almost impossible for them to spend extra money constantly. As a solution to deal with that challenge Plozay and Bohn (2008) offer is to combine bank-sponsored program with a merchant-funded program: it is considered as the LP available for FI credit or debit cardholder where consumers receive higher bonus points or cashbacks at participating merchants and the ordinary rates for other purchases in accordance to the bank's rules. Authors state that the suggest approach is a mutually beneficial partnership because banks receive the opportunity to provide highly-attractive loyalty-building program without burdening additional costs while for merchants that collaboration brings a new valuable marketing channel and is supposed to lead to the increase of sales for which they are ready to co-finance the rewards (Plozay & Bohn, 2008). The technological aspects of merchant-funded LP realization are also covered within the article with the suggestion to utilize for that purpose First Data IT solution. Thus, the authors are focusing on banking industry, describe funding of rewards as the challenge to perform banking LP and propose to create a partner network to co-fund greater consumer benefits in order to improve program's efficiency. At the same time, Plozay and Bohn ignore the relative reproducibility of the approach which is seemed to be able to be easily replicable by other banks and, thus, lose its competitive advantage rather fast.

Developing the idea of financing customer rewards in banking loyalty programs, we move to the co-funding participation of payment card networks. International payment systems, such as Visa or Mastercard, are determined to expand their businesses and, hence, they are also competing with each other and with national payment systems to increase the number of bank cards issued on their basis. Due to that purpose, these payment card networks participate actively in banking LPs and partially co-fund the rewards (Ching & Hayashi, 2010). According to Ching and Hayashi (2010), as the competition for cardholders becomes more intensive, the more generous rewards points are launched to attract and maintain clients, so one of the contributions from international payment systems was the introduction of new bank card product category called World (by Mastercard) and Signature (by Visa) which are co-funded with the much greater bonuses than traditional product categories as Gold and Platinum, respectively, in order to encourage `best customers'. However, that study does not explain the criteria (if any) of how that payment card networks decide which banking loyalty reward programs to co-finance.

Technological challenges

Digital transformation is one of the leading trends in retail banking sector of recent years: top managers realize that “going digital” is a required fundamental change in how their banks interact with and satisfy the clients (CGI Group, 2014). According to the research of CGI Group (2014), in which more than 1 200 customers from USA, Canada, Germany, France, Sweden and the UK was surveyed about their banking preferences, over 58% of respondents confessed that they would like to be delivered with financial institution's services via the digital channels, among which are smartphones, tables, laptops (figure 1).

Figure 1 How would you like your services to be delivered Source: CGI Group. (2014). Understanding Financial Consumers in the Digital Era. Retrieved from https://www.cgi.com/sites/default/files/pdf/br_fs_consumersurveyreport_final_july_2014.pdf

Besides, more than 80% of the survey participants expressed that they expect to be appreciated for their total spending and rewarded for loyalty towards their bank (CGI Group, 2014). At the same time, it is highlighted in the research that reward programs of various types, from loyalty cards and cashbacks to upgrades and free flights, are rapidly becoming market's mainstream. Thus, taking into account both internal and external factors of LP's raising popularity as well as considering the digital transformation trend, CGI Group (2014) concludes that bank loyalty-oriented programs should be innovated and offered in more interactive and dynamic way using digital channels: consumer should be able to access LP interface from any device, and it should reflect all the changes (for instance, the balance of accumulated point).

In her paper Babrovich (2017) also declared that FIs can increase LP's performance if they develop and provide an omni-channel view on consumers' rewards because clients will additionally appreciate the opportunity to view their bonus points from any platform (tablet, mobile, desktop) as well as to be able to redeem accumulations with no efforts. Figure 2 illustrates fast recent growth of usage of the Internet worldwide. Due to that trend over two last decades banking services has been transformed significantly in term of their accessibility from anywhere and at any time and, thus, it has become crucially important to provide bank loyalty program's participants with the ability to realize redemption of bonuses from their smartphones online and without any hassles (Shamsudin et al., 2015). Besides, the research of Bain & Company (2012) concludes that mobile functionality, as a whole, is one of the table stakes in the competitive fight for loyal customers, so FIs should invest in that as in the tool which has the power to differentiate a bank.

Figure 2 Individuals using the Internet, world (% of population)

Source: The World Bank, Individuals using the Internet (database) (accessed March 2020) https://data.worldbank.org/indicator/IT.NET.USER.ZS?end=2016&start=2006

All in all, the digital transformation phenomenon influence significantly retail banking sector, as a whole, and banks' LPs, in particular, provoking a number technological challenges for loyalty reward programs' design and introduction. Among them the following ones could be outlined: accessibility of LP's platform though digital channels, ease of points redemption, user-friendly interface from desktop, tablet and mobile gadgets.

Marketing

Here we are moving to the promotion of loyalty reward programs performed to foster FI's existing clients' active involvement in the project aimed to raise their loyalty, as well as to attract potential customers. One of the papers covering marketing of banks' LPs was written by Spradlin (2016) and highlighted the importance of the promotional activities as one of the main pillars for reaching program's goals. The author states the existence of difficulties related to the allocation of resources needed “to support a dedicated marketing or customer engagement team capable of executing effective strategies for their rewards program”. He emphasizes that without sustainable promotional support, the LP is not worth the investment, thus, banks need to support it with the durable marketing and customer engagement strategies. These strategies could be realized relying on third-party provider or internal team, if they have necessary competencies. Spradlin (2016) supports his conclusion with the fact that more than 80% of the most efficient LPs maintain allocated marketing specialists, however, that statistics is not specified for bank loyalty reward programs.

All in all, the review of literature dedicated to the topic of LP design and launch allows us to identify several challenges which financial institutions may face if decided to influence customer loyalty through the implementation of specified marketing programs. Among the challenging aspects could be outlined the following ones: to offer various and valuable rewards, to balance costs while providing significant incentives, to develop LP's technological platform with the criteria for accessibility via digital channels, ease of bonus points redemption, development of user-friendly omni-channel (desktop, tablet and mobile gadgets) interface, and marketing support to promote the program both internally and externally. Despite the fact that the list of challenges probably is not all-inclusive, in our further research we are going to limit our focus mainly to the described aspects.

1.3 E-travel companies as partners of bank loyalty reward programs

Nowadays, the humanity proceeds to experience the global phenomenon of digital transformation empowered by the growing level of digitalization (based on expanding usage of conversion of analogue signals to binary bits for universal representation of data) and interconnectedness (based on rapidly spreading accessibility to the Internet) and covering the majority spheres of people's live (OECD, 2017). From the very beginning, that tendency made possible and still incentivize the emergence and wide implementation of the innovative business model type called “two-sided platforms” in which companies create their profit from the development of digital platforms which make possible the direct interaction between two groups of participants, known as `sides' (Hagiu & Wright, 2011).

The travel industry was one of the successful pioneering examples of the realization of digital two-sided platforms: mainly began with Expedia.com and Booking.com start-ups launched in 1996 to aggregate hospitality offers directly from hotels and bring them to travelers avoiding the intermediaries (Heerschap et al., 2014), the area continues to be extended with new start-ups developing IT solutions to aggregate touristic services from providers to present them for consumers via the digital channels and receive the commission from sales (Ling et al., 2014). The contemporary demand on such platforms is additionally stimulated by increasing DIY (Do-It-Yourself) trend meaning that people desire to participate in the creation of customized products (if possible) rather than to consume them passively (Fox, 2014), thus, they would like to have instruments to created their journey without intermediary offline firms.

In our study, by the concept of `e-travel companies' we mean IT businesses which own and technically develop the digital product (website, mobile application or both of them) which collects a significant variety of offers from travel-related service providers (airlines, hotel, car rental companies, etc.) and sell them to platform's users who prefer to organize their trips directly without the participation of specialized agencies. These companies are also frequently named as online travel agencies (OTA) (Ayazlar, 2014).

Looking back to the history, it is travel rewards, especially airline miles, which was offered to cardholding customers within banks' primary loyalty programs (Ching & Hayashi, 2010). Provision of clients to gain travel-related benefits is considered to be a classic practice determined to improve loyal behavior towards their financial institutions. A number of researches (Wang & Hsu, 2016; Reales & O'Connell, (2017) have already been realized in order to study the peculiarities and benefits of partnerships between banks and airline companies introducing co-branded programs in which cardholders are rewarded with special points (miles) for their transactions with bankcard and then could redeem those bonuses for free flights, upgrades of service classes, additional privileges such as access to the airline membership club lounges in airports or other plane-related services.

At the same time, little is known about other collaborations which banks perform in order to offer their consumers other types of travel rewards for their participation in retail banking loyalty programs. Inasmuch as online travel agencies maintain digital platforms aggregating numerous journey-related offers, it could be interesting for FIs to use their toolkit to innovate their LPs or design new ones. Thus, in order to extent that area of academic knowledge, we realize our research targeted to study partnerships between banking organizations and e-travel companies focusing on those benefits which both parties gain from that format of collaborations.

2. Methodology

Nowadays, the area of bank loyalty rewards programs is developing and attracting growing interest from both business and academic sides, while the topic of partnerships between banking organizations and e-travel companies remains understudied. In our paper we are targeting to study and answer two major questions: 1. Whether LPs with travel bonus rewards are in demand by financial institutions in Russia? and 2. What are the mutual benefits for both parties from performing those collaborative projects? For these purposes, mixed methodology was utilized including both quantitative and qualitative methods.

The below is presented total framework of the study divided into three stages:

Stage 1: Descriptive analysis of bank loyalty programs with travel rewards in Russia

First of all, we are going search for existence and analyze the structure of LPs with point-based travel rewards performed by Russian banks in order to conclude on whether that practice is in demand, to outline most frequently used patterns and most popular e-travel companies which play the role of technological partner in these programs.

Stage 2: Case studies on bank loyalty programs with travel rewards in Russia

At that stage, we are aiming to develop the area in-depth via the conduction of case studies in order to outline a range of peculiarities and patterns of how LPs with bonuses for travel are realized by the leading retail banks in Russian. The analysis is going to be focused mainly on the aspects of technological realization of platforms with tourism-related rewards provision and on the general rewarding scheme structure in accordance to those techniques identified during literature review.

Stage 3: Individual interviews with field experts

Here we are going to apply qualitative method of semi-structured interviews conduction in order to go deep inside the area of partnering projects between banks and e-travel companies and to identify whether technological partnerships on the development of travel platforms for banking loyalty programs with bonuses could become a solution or mitigation of a range of challenges outlined during the review of literature. Besides, other benefits from such projects for both FIs and OTAs are supposed to be discovered and reasoned as well as probable obstacles for such collaborations are going to be discussed.

The conducted research has a number of limitations among which are the focus on point-based (bonus) type of reward scheme as it is considered to lock customers in the loyalty program, and the narrowing of the study via taking into consideration the Russian market of banking LPs with travel rewards only.

The proposed methodology is supposed to be enough in order to identify and justify benefits which each of the observed collaborations' participants (banks and e-travel companies) receive and whether loyalty programs with travel rewards are in demand by Russian banking organizations nowadays, however, the performance of these projects is not the goal of our research and could be analyzed in further studies. Our study is considered to bring valuable insights for both banking organization and other OTAs: on the one hand, banks are assumed to be able to get ideas on how they could organize or innovate LP with bonus travel rewards and what are the benefits from technological partnership with OTAs, on the other hand, e-travel companies could discover a number of rooms for improvement of their IT solution in order to be interesting for FIs.

2.1 Descriptive analysis of Russian bank loyalty programs with travel rewards

2.1.1 Research design frame

That stage of our research is dedicated to the analysis of those loyalty programs with travel rewards which are already performed by Russian banking organizations. We decided to choose the quantitative method of study in order to be able to provide readers with the conclusion on whether such LPs are generally in demand from banks as the mean to encourage their clients for their loyal behavior as well as to outline the FIs' preferences on the formats of realization of the provision of tourism-related incentives. As it was mentioned before, in our paper we are focusing on the topic of technological partnership between banking institutions and e-travel companies as well as on the point-based reward scheme, thus, performing that stage of our research, we excluded from observations the cashback-based and discount-based types of LPs even if they contained travel presents in one or another extent. Besides, that analysis allowed us to outline the online travel agencies which are already participating in such collaborations with banks in Russian Federation.