Merchant-Funded Loyalty

Merchant-funded loyalty refers to a model of loyalty rewards programs that are sponsored by credit card issuers but are supported and funded by participating merchants. This arrangement allows credit card companies to offer attractive rewards and incentives to their cardholders without bearing the direct costs associated with these promotions.

In these programs, merchants agree to fund the rewards offered to cardholders, typically in the form of discounts, cashback offers, or special promotions. The merchants benefit from increased exposure and sales opportunities by introducing their products and services to a new customer base—the cardholders. The incentive for merchants is the potential acquisition of new customers and the increased likelihood of repeat business from cardholders who redeem offers.

For example, a company like First Data provides a platform where credit card issuers can access a network of thousands of merchants. These merchants offer rewards that can be included in the credit card's loyalty program. When cardholders use their credit cards, they earn rewards funded by the merchants, which can then be redeemed for various offers within this network.

This type of loyalty program is advantageous for all parties involved:

Merchant-funded loyalty programs are thus a strategic tool in customer relationship management, helping issuers enhance their value proposition and merchants boost their sales and customer engagement levels.