Flourish in a Flash: The Future of B2B and Incentive Gift Card Programs
Please note: Transcripts are computer generated.
You're listening to the Flourish and a Flash podcast with the Flourish team, Dez, Holly, Kristen, and Erika.
Hello, everyone, and welcome to another Flourish in a Flash. I'm super excited because we have a special guest on the show today. His name is Eric Thiegs. He’s a good friend and a 20+-year veteran of the gift card and loyalty industry. He's currently the chief revenue officer and one of the partners of NGC. For those of you who weirdly may not know what NGC is, it's the leading gift card technology partner and provides the latest capabilities in physical, digital, and mobile brand currency distribution and e-commerce platforms. You may have heard us use terms like an “aggregator” in the past, but they are more than that now. So we're really excited to welcome Eric to talk about the latest and greatest in the industry. So Eric, welcome to the show.
Hi. Thanks, Holly. Thank you.
Well, I'm pretty pumped to talk to you today because we've known each other a while. I feel like you guys are always up to something interesting over there at NGC.
I think this will be a pretty interesting conversation. I know today we wanted to focus a little bit on the rise in mobile and digital branded currency initiatives and where we see things going. I think for years as an industry, we've talked about how “digital's going to take over everything” and “physical’s going to go away,” but that's really not the case. I think it's interesting to talk about what is happening in that space that's interesting or new, and I would love to hear from your perspective. Are you seeing a shift in volume from physical to digital or mobile in your programs? What are you guys seeing over there?
Yeah. I'm going to tackle a couple different aspects of that question. The first one being, you are right: everyone did assume digital was going to come like a tidal wave and just kind of crash with everybody. We all have our mobile phones in our pockets and it just made sense that, hey, everyone's going to be using an e-gift card at some point versus physical. As we've seen, there are some programs that have obviously evolved faster into digital and some new programs that are digital only. But for the vast majority, especially in B2B still, the vast majority of redemptions and usage of gift cards is still physical.
And I think a lot of it has to do with the marketplace and the demographics out there. Gift cards primarily are still used at the point of sale. They work perfectly in terms of those physical cards. The technology isn't broken. People know and understand what a gift card is. Whether you want to carry it around in your wallet or gift it to somebody, physical is still king in that regards. I think the industry as a whole is still seeing a large majority of the dollar load activations of gift cards happening on a physical card, especially in B2B. And that's, again, whether it's baby boomers or Gen Xers.
There are even case studies that were coming around millennials, who have been kind of on the forefront of that digital revolution from a demographic standpoint and from an age category. Because they were around digital, physical is actually special to them. So we're seeing some case studies out there that are saying, “Oh, millennials prefer physical.” Now, for self-use, people are going digital.
My longwinded answer to all this, those coming back to your thing, is physical is there. Physical is not going anywhere for the next… If I'm putting my 20-year veteran head on (and thank you for that introduction), I’m going to predict that physical is going to be around as the majority spend and load for the next, I would say, 10 to 12 years before digital catches up to it and B2B. Just, again, the technology and the product itself isn't broken. Now, all that said, programs that we're seeing when you're supporting a bank loyalty program or a healthcare or wellness initiative, a lot of the physical redemptions are now being augmented with a choice.
And this is important, going back to demographics. These programs and these affinity groups and employers are saying, “We know many people still prefer physical, but we should give them the choice of a digital option or something that they can pull inand use their mobile phones with, because it's so convenient to have a mobile card that you can pull up on your mobile phone.” That said, we're seeing a lot of programs come to us and say, “Well, hey, we know you do all these physical redemptions, NGC, and fulfillment. Can you enable an API so that we can pull in some digital content from a brand’s e-code or the e-template or the form factor, and can you kind of deliver that through a mobile connection?” And the answer is yes, because Gen Z's younger millennials and even savvy Gen Xers like you, Holly—you're a millennial, though, aren't you? You're not a Gen Zer?
I'm on the cusp. I’m in that weird gap where they haven’t placed me.
I know. Okay.
We’ll say millennial.
Okay. I'm going to say millennial because I don't want to age you.
Yeah. What's happening is, these programs that have been heavy physical for a long time, in order to keep some of those younger audiences or audiences that want digital or want that choice, they have to be able to evolve. Just from a business standpoint—and here's where we've been positioning ourselves—you have to be ready to catch that opportunity, right? You don't want to be just physical. You want to be able to say, “Oh, well, heck yeah. I can take in an API and we can do email or text or mobile applications of your program if you wish.” Because eventually, like I said, in X number of years, those digital redemptions and those digital experiences with branded currency and people wanting an e-code instead of just the physical card. We got to be ready to catch those desires for people to have turned that feature on in their program.
I totally just rambled there forever. I could riff on that for, being in the space for so long. Sorry.
No, I think it's great because you actually sparked a couple of ideas. I think this is just mirroring what we're seeing in retail in general where, for years, I feel like retailers have been really good about being multichannel, but not omnichannel. The thing is that, as consumers, we expect this very connected experience—the opportunity to have that physical card but then maybe store it on my phone. And those two things should be talking to each other. I think there's a desire for that, but you don't want to drop one for the other. I feel like consumers still like that comfort of the physical that you were talking about.
They do, and that choice is important because here's the crazy thing. This is interesting. We've seen a couple programs do the hard switchover and a lot of it’s cost driven. Oh my gosh, you don't have the cost of paper, envelope, labor, or a stamp. NGC, we have a whole rate card when we're dealing with clients that want to do physical fulfillment of gift cards as rewards to the end recipients. Here are all the costs you get to cover, right? Well, all that goes away when you're doing a text or an email. It doesn't go away; it just changes. You're talking about an API call cost or the cost of the e-code with some very minor digital fees. There's a huge savings just from a budget standpoint for some of these programs. We’ve seen a couple that did the hardship, like, “You know what? Let's just go all ‘e.’”
The problem became the end consumer based, again, on where they're at in their life and their comfort level with technology. You’re taking away something that was never broken in the first place: a physical gift card that people know how it works. As we all know, many of the digital executions of an e-code—it's different from merchant to merchant, right? Some are sensitive to our codes. With some, the cashier still has to type in the 16-digit number and the pin or whatever it might be. And because those experiences are different, it freaked out some consumers. The spam folder ate their gift card instead of them expecting it in the mail, which they always get. Rain, sleet, or snow, the post office shows up, but emails are little... So you kind of introduce these variables where people are either having a negative experience with the reward, or it just went into a clutter folder, or something like that. Right? So then they're like, “I don't want this and I don't want to deal with that anymore! Where did all my points go? Refund my points.” And, “Hey, why did you take it away? I just want to get one of the physical gift cards.”
So then we had some of these clients swing back and be like, “Okay, never mind, we'll leave digital there, but we got to bring back physical.” So I think, again, until all the baby boomers and Gen Xers and half the millennials die (and I'm joking, of course), but until this is truly the 22nd century and everybody's on digital… That's why I say 10 to 12 years. It's going to be a long time before someone wants to give up holding a physical card, but you got to be ready to service those that want it immediately. Because that's the problem. You got to wait X amount of days to get your physical card in the mail. Digital, you can have it right now. And I think as people get more impatient… Industry players like Amazon change the world of what a consumer expects, because you can order something on Amazon and it can show up the same day in a lot of cities now.
You got to perfect that delivery turnaround time because if the urgency is not there, a lot of people aren’t going to wait anymore. Digital, just from that standpoint, is going to start to rise because people are willing to take the risk on the unknown—on a digital card—if it can get there quicker.
Yeah. Do you think, Eric, that some of the hesitancy might come from it being in an email? I feel like some people are texting gift cards and codes and things out. And as we see more loyalty programs actually switching to a very text-based communication strategy, I wonder if that will be a preferred method of delivery, because people will say, “It's easier to find,” or something. I don’t know. We’ve been kind of tossing that idea around over here. I just wonder if it's that people have so much in their inbox, they just don't trust that they're going to see it.
You are 100% correct. And there are levels to this, email being kind of the base level of delivering a digital code, text being the next. And the third level—we're actually working on a couple pilots right now, and I can't name clients. We have one program that's live in market now, too, that we're doing a significant volume with, and this goes to the branded currency piece with Flourish. Here, I’ll paint the picture of what's happening. You can be standing in line, and you can realize, “Oh, I've got XYZ amount of points with my loyalty program.”
The traditional redemption method for a loyalty program as it involves merchants with gift cards in these programs is the person logs into their loyalty program, they redeem the points, and then just like you were saying, if it's digital, they got to wait for an email to be delivered to them. That might take a few seconds or a couple minutes, depending on server connections and the email system pushing that out. And then once they get the email, they got to open the email. They got to find the email first, open it, and then they got to click on the URL link, which opens up the form factor for that merchant’s e-code that's approved for point of sale use. All those different steps. At some point, it's just like a card for e-commerce. You could lose the consumer, and again, there could be something that could happen like that. It goes to the clutter folder, and now you got to go through all your clutters or whatever it might be.
What we're doing is, we're basically truncating all those steps so instead you can be in line at Starbucks, or maybe a different merchant—any merchant… It could be Home Depot. You're in line at Home Depot, and you realize you've got 100,000 points and you want to get a $50 e-gift card right now from Home Depot. We’ve bridged the gap where you can now log into your loyalty programs. And with API calls, and because NGC is atechnology hub and we're connected directly to all the processors, we are our own entity. You had used the word “aggregator,” but we're a primary source. We're directly connected to all the merchants and their processors. In some cases, we're using aggregators for content—other aggregators—but we're really the primary source now for 95% of the merchants.
And so what will happen is, Holly logs into her loyalty program, and now, while she’s standing at the point of sale, she can enter in, down to the penny, $55.14. She can click, buy, and she can use those points right there almost as a currency. The branded currency in this case is the points from her loyalty program. NGC sits between the loyalty program and the merchant. We make the appropriate API calls. We push the API calls back to the program to deduct the amount of points and we use a single load e-code from Home Depot to process that transaction and she can check right out. She never had to check an email; she never had to check a text. All she had to do is log into her loyalty program and confirm that she has enough points to pay for that purchase. And if she couldn’t—if she had a $50 gift card, but the purchase was $54.14—we can redeem the points down to the penny for the exact amount that it's worth, and then she can use another form of payment with Home Depot to pay for the balance if she’d like.
But the key here is that all these people are walking around with currencies in their pockets—on their phones. You've got cashback, you've got miles, you’ve got points on all these different programs. The whole thing is, NGC sits in the middle of this now. And we can facilitate skipping all those other redemption steps and you can actually use your loyalty currency as a form of payment and pull in a single-use e-gift card from the merchant. We've got that technology switch to make all that happen right now. Like I said, we have an in-consumer program that's doing about $30 million a year on that and then we've got two other beta programs with some B2B clients that are testing with us. It’s very exciting. I'll talk about that at Flourish. I think I'm doing a session.
Yeah. I'm excited to hear more about that because obviously, we advocate for people combining efforts with all these programs and using the technology to enhance the overall customer experience. I think it's important that you guys are looking at your technology and saying, “What can it be?” Not just, “What is it?” And I think the whole point of conversations like this is to help say, what is the end goal for a retailer? Do they want top line sales? Or do they want a really loyal customer that says, “Oh my gosh, they just made my experience that much better?” And I think that's the point of all these tools and products.
Exactly. If you are a brand—and you can be that experience where someone can use this other former currency. It's not a credit card. It's not. But here's the other beautiful piece about this: when we're doing that process, if you just think about fees to the merchants. What do merchants pay for? Every time someone uses an American Express card or a Visa card—a credit card—there are interchange fees that that merchant has to pay and all these finance folks—the major retailers are like, “How do we reduce interchange fees from credit cards spent?”
Well, holy cow, when isn't it nice when actually the funding of this is coming from a client's program? Excuse me, that is we're using a gift card. So it's that merchant’s gift card, and this person can now use their loyalty points from this affinity program that they belong to again and again and again as they build up, because that's usually tied to a credit card program or some airline or whatever it might be. That form of currency becomes a way to pay at a merchant and it's a much lower-cost version of payment because you're not paying interchange fees and things like that on top of it.
So how can we drive more people into the stores? That is one way—well, let's make sure your card appears in these, again, I'll call them an affinity payments model…
…Where your gift card is the form of payment.
No, that's true. I think with every retailer now, you're seeing this shift in, “Okay, what kind of consumer behavior do we need to see?” If you're a restaurant, you need footfall. Right? If you're a retailer that has a web presence, do you care if someone's walking in? Well, yeah, if you're holding a lot of real estate assets, which a lot of traditional retailers do. You want to make that worth your time as well. I think for a long time, looking at gift card and loyalty as very siloed has maybe made one less important than the other in the eyes of leadership at different times.
But when you combine them like this, you're creating a really powerful call to action that can send someone in store, that can make them spend more than the value of whatever their loyalty points are or whatever the value of a gift card is. You really enhance customer experience, but also spend. I think those are some important metrics to keep in mind. That's really exciting. We’ll be excited to hear more about that at the conference for sure. Just to switch topics a little bit, Eric, we get a lot of questions about B2B, just overall. Last year, we talked about how there was a lot of consolidation and things like that, and I think there always is in B2B. But I think more people are trying to understand, who's our consumer? How do we reach them in an effective way? I don't know. Are there any trends you're seeing in B2B lately that you think retailers should be paying attention to make the most of this channel?
Yes. It’s interesting. We pay a lot of attention to what we call “verticals” here at NGC. It’s a customer type. For instance, our largest customer type are loyalty and reward agencies. Where NGC sits behind a points-based or loyalty rewards type of agency that works with their downstream clients—the banks or whoever are the affinity groups—and we're the engine that kind of makes it all happen for those retailers. So those catalogs where people log in to redeem those points or miles for gift cards—behind a lot of those sit NGC. We’re the sourcing content buyer with the merchants for those programs and then we're the fulfillment partner. We will continue to see. That's obviously a large category in B2B that we all monitor and we all know who the normal, big agencies are out there. Some of them buy from others; some buy from NGC. But we all kind of play in that realm of, “Hey, how do you get an end consumer who belongs to this loyalty program a gift card?”
Well, if you're not plugged into that infrastructure in that system, whether it's an NGC or the loyalty partner, and you're not in our catalog, we're not helping enable you to get in those catalogs, and you're kind of missing an opportunity there. The other big area is wellness and healthcare. As an example, it is our largest and fastest-growing vertical at NGC. We’ve got right now 172 health insurance programs that we support. As people are, for instance, going to their annual diabetes checkups or wellness exams for their doctors or for their insurance companies, those annual constituents are getting rewarded with a gift card. It helps the health insurance companies save money; it helps the end users stay healthy, to be preventative and not wait until something gets so dire that someone's ending up in the emergency room.
So that's through the initiative, and these health insurance companies have these amazing, crazy case studies with audience A and audience B. If you're rewarding audience A to go to their preventative annual checkups versus audience B, where you don't send them any communication about a reward for doing that, the health insurance costs and the health of the end consumer, for group A, is above-and-beyond, exponentially better than audience B, and literally because—and I kid you not—we will give you a $25 Applebee's gift card if you go to your doctor's visit. And again, speaking of physical versus digital, these are heavily dominated physical programs because you're dealing with Medicare and Medicaid audiences—older and sometimes also less affluent consumers.
And there's a huge mass section of those. What’s happening is, more and more of these insurance companies are seeing these industry-related reports come out from the healthcare market, saying, “Holy cow, this company has rewarded their customers and we kept costs down, kept people healthier. And we used Applebee’s as our carrot to do so.” So NGC, we're sitting in a hub of, like I said, almost 200 programs to the tune of over $100 million worth of our businesses just in supporting healthcare programs right now. Our lawyers watch regulatory changes in that area. Our sales team is out there as specialists in this. We're a HIPAA-compliant facility so we can take in PHI—personal health information—data to put on a carry. We're actually printing healthcare carrier letterheads here out of our facility, fixing the gift cards to them.
We work with all of our merchants really closely, and I was using Applebee's as an example. It's funny, a lot of folks like to go to Applebee's after they visit the doctor apparently. It’s one of our top-selling cards in one of these programs. And we rotate different merchants through, and so I think that's another key area, and it’s a good one for where things are going in America. You can't turn on the news without hearing about healthcare, whether it's the left or the right talking. But across the whole thing, at the end of the day, people are just trying to be healthy, and some gift cards are becoming a huge play in that arena right now.
That's really interesting. I think I would have initially assumed digital in that space, but you're totally right. With an older audience, physical makes plenty of sense—tons of sense.
Yeah. Going back to regulatory, there are some cases where state law mandates. It's out of even just cost at this point for these health insurance companies. The state laws mandate that if you're going to give a reward, you have to do it in a manner that guarantees the end recipient will get the reward. And guess what: there are a lot of people going back to the email thing that we talked about earlier where it's not a guarantee. We can guarantee that someone who lives at an address, that the US government, when sent with first-class postage, your likelihood of getting that is a lot greater. And yeah, there is lost and stolen mail, but we've been tracking. I mean, gosh, NGC does 20+ million envelopes a year and physical rewards fulfillment. I'm not kidding, though, it is a fraction of a fraction of a fraction of 1% of lost and stolen that happens. And programs just fill in a, Oh, we know that's going to happen. They'll submit a new order if Holly or Dez calls up and say, “I lost… I never got my mail,” and they send out a new card.
They bake that into the cost. So that's the other one. So healthcare, and then the other thing—the third one—is what I kind of lump into “new tech.” And this is where digital comes into play, because loyalty rewards and healthcare—still heavily physical. But some of these things that we're talking about with mobile or a B2B2C type of program, where it's an end consumer interacting with a new membership program online or it's really a consumer purchasing of gift cards different than a raise or a carpool or something like that, but it's a way to participate in the gift card market as a consumer. And then that company that's kind of running that marketplace is then contracting with us or Blackhawk or Incomm or whatever. So we're seeing kind of a rise in... And that's really net new sales.
It's these kind of new tech companies that are using just digital and our API connections to reach a consumer market that's really kind of targeted or segmented in some way. And we're supporting that. That's probably the third biggest arena and that's driving a lot of the digital rise that we're seeing.
We actually did this. Here's an interesting fact. A lot of people think NGC is the kings and queens of physical gift cards. We did more sales in digital cards last year than we did in physical. So it's definitely on the rise for where digital is going. It's just volume-wise of redemptions, and that was a lot of low denom. But if you count dollar value, it's physical still.
Okay. That's really interesting. I don't know if you know this stuff off the top of your head, but do you find that maybe those digital offers are just smaller in general? Are they like $5 or $10? Just the lower?
Yeah. We call them micro-rewards. Exactly. You can work with the brands to do $1, $2, or $3 type of rewards as an incentive or a behavior that's sign up for this. You don't have to spend your traditional $25 or $50 or $100 type of standard B2B denoms. You can get into the micro-rewarding, and it's less expensive for the client.
When you're setting up API, you can reward people in real time when the behavior is actually completed. A lot of times, it's stuff like, “Hey, here's an iTunes gift card or e-code for $2 for Apple Music,” or, “Here's an Amazon dollar code to buy something on Amazon for $4.” But those kinds of things, you can do high quantity—an almost unlimited volume—with the API connections digitally that we've got with the processors or the merchants. It just makes for a very quick and streamlined and immediate gratification type of experience with the user.
That is really interesting. So you're seeing more of those micro-rewards start to pop up, but pretty specific to that new tech and B2B kind of area then.
You got it. Exactly.
Very cool. That is a topic that we've discussed a little bit but never really deep-dived into. I think it's very interesting because when you're online especially, people are vying for your attention. I think any more saying, “Hey, here's $2” versus “Here's 10% off”—giving people that quantity that they know they can spend is very interesting. It’s one of those sort of psychological things that we keep talking about deep-diving into and trying to find the research on, and I think that's a great topic that we can maybe revisit one day.
Well, and you know what? You know what we could do? We should marry up some of the data that we're seeing and we can anonymize it… I don’t know if that was the word. Make it nonspecific, but whitewash the data to be able to say, “Hey, we saw in this program that was using micro-rewards X amount of uplift,” or, “We saw that the average ticket was increased,” and we can work with our clients to get some of those types of information to feed back to you guys.
Yeah, that would be cool. We should definitely do that. Post-conference we’ll do that.
Okay. Here's the other thing, too. There's one other thing for digital that's kind of key for a trend that's helping with the digital increase in sales for retailers is so down-to-the-penny. And it goes back to that if you're sitting on a bank of points, and you're right at the cusp of getting a $100 gift card but you don't have enough points to do it yet, and you don't want to go out and spend that extra $150 that's going to put you over the top, you know what I mean? There's nothing you want to buy.
But if you actually redeem your points, you could get a $97.57 e-gift card. What we're doing now is we're allowing redemptions through our APIs down to the penny, so people can cash out their points. They don't have to wait for that next threshold, again, going back to immediacy and urgency. And you can get really the value of the points that you're sitting on to use like a form of payment or a reward for yourself or a gift for whoever.
It just comes in the form of a digital delivery—email, text, or like we were saying before in some of these pilots that we're working on, you could be standing in line and do it. So that's the other key thing I think that's exciting for retailers is, are you supporting all your retailers out there? Are you supporting down-to-the-penny programs? Hopefully you are. That is definitely one of the trends on where these things are going, because the consumers like that convenience of being able to dump at points.
And here's the other thing: the programs themselves love that because as we all know, the points build up and there's an accrual liability on the books. And that company has to keep cash on hand in case there’s a run on the bank and all the people redeem all their points all at once. They've got to keep reserves ready for that scenario, so these programs like to have a balance of people getting rid of points. When you can set up a down-to-the-penny redemption, people are more inclined to just dump all their points instead of holding onto them of waiting for the next threshold.
People are impatient. At the end of the day, people want their reward. So how can we help them get it? Micro-rewards, down-to-the-penny rewards, physical rewards… Giving choice, digital, whatever it might be.
That is fantastic. Well, I am so glad you were able to join us today, Eric, because I think all of these ideas are very new. I mean, when you think of how quickly our industry is changing. When I think back even five years ago, so much of this wasn't even really possible. The opportunity today is pretty massive if retailers are willing to get creative and lean on their partnerships to make a lot of these things happen.
Oh my gosh, without a doubt. Retailers should just call all of their key relationships out there, like, “Hey, what can we do? Let's brainstorm.” We do it all the time with our brand partners and corporate partners. So yes, they should.
Awesome. Well, Eric, I'm so glad you're on today. I think this is a really fun episode. You guys can catch Eric onstage at the Flourish Conference, March 16th through the 18th in Chicago, Illinois, where we can continue this discussion. We hope to see you all there, and Eric, thank you so much.
Thanks, Holly. Thanks, guys.
Flourish in a Flash is produced by K+H Connection, a branded currency consulting firm. You can learn more about K+H at KHConnection.com. And you can always find out more about Flourish and the Flourish Conference at FlourishCon.com, or follow us on all of our socials. On Twitter, Facebook, and LinkedIn, it's @FlourishCon, and on Instagram, it's @Flourish_Con.