Is It Time to Ditch Loyalty Programs for Fractional Shares?

In 2016, Chobani’s founder and CEO, Hamdi Ulukaya, surprised his company’s roughly 2K full-time employees by awarding them with stakes in the privately-owned popular Greek yogurt company. The shares, which were allocated based on the length of employees’ tenure, represented a 10% stake in the company and will be awarded when the company goes public. Based on expectations for Chobani’s initial public offering, some employees could receive shares valued at more than $1MM. People will go to great lengths to support an organization they have some sort of ownership in, whether they work there or not. Given that reality, stock reward programs are becoming a more popular way for organizations to boost loyalty among customers. Some companies are finding that fractional shares are a better reward than traditional loyalty points.The Increase of Dormant Loyalty PointsLoyalty programs, long popular among retailers and credit card providers, are something people have become accustomed to. Since people don’t want to lose the awards they accrue, they have become a proven method for enhancing brand loyalty, particularly among credit cards. But there is another side to loyalty programs that can create a major headache for the organizations that manage them and issue points. There are roughly $48T in unredeemed loyalty points that people are holding on to, a practice that creates liabilities for companies. Whereas the entire point of fractional shares is to hold them and let them build up so that the underlying value increases.The long-term benefits of investing in equities are widely known, yet not everyone can afford to do so. Enter fractional stocks, which allow people to acquire partial shares of big-name stocks they would otherwise be unable to afford. Such shares have become popular among newer investors, particularly for assets such as cryptocurrencies or technology companies where an individual share can be upwards of a few hundred dollars. Capitalizing on this popularity, some businesses have begun replacing the typical rewards earned through loyalty programs with fractional shares. Their efforts seem to be paying off.The Case for Stock RewardsAccording to a study from the NYU Stern School of Business, stock rewards used in loyalty programs by retailers typically translate to three months of increased spending on products from the company that people are earning partial shares in. Just $1 in stock rewards generated more than $16 for that brand. Not only can these types of programs be a good way to attract new customers, but they can also help build loyalty among existing customers — a valuable tool, since the cost of acquiring new customers can be 5x to 25x more expensive than retaining existing customers. Retailers such as The North Face, Target, and Costco, among others, have rewarded people for loyalty and active spending with fractional shares of their own companies by partnering with fintechs such as Upstreet, an app that people can link to their bank account so that spending is tracked and rewarded for certain brands. In the case of credit card providers, customers are typically given the option to choose between a handful of companies that they want to receive partial shares from. Fractional Share Programs in ActionSeeing the success of such programs, community financial institutions (CFIs) are starting to embrace fractional share loyalty programs themselves. For CFIs, the benefits of offering such programs can be twofold. They can be a way to attract new customers as well as provide a service to small- and medium-sized business customers. They can also serve as a springboard for supplementing financial education initiatives for customers. In cases where business customers are not publicly listed and may want to participate, an alternative offering can be fractional shares of popular exchange-traded funds. Here are a few examples of financial institutions that have taken advantage of a fractional stock loyalty program: 

For CFIs interested in dipping their toes into fractional stock loyalty programs, the simplest way to do this is by partnering with fintechs, such as Bumped and DriveWealth, that specialize in such services.As traditional loyalty programs begin to lose their appeal, fractional share programs are an attractive alternative to consider. Whether offering such programs for your own organization or for business customers, the attractiveness of stock ownership can be a powerful marketing tool.