Rewards programs can encompass a wide variety of different kinds of bonuses and rewards, including cash back, referrals, loyalty programs, spend incentive programs, points programs and more (defined as “Rewards Programs” for the remainder of this guide).
There are a number of requirements to consider when marketing and disclosing any Rewards Program, and the applicable material information necessary to disclose to end-customers regarding how the rewards can be earned or awarded may vary depending on the type of bonus being offered and the regulations that apply.
In addition to the requirements and considerations outlined in the sections below, Unit’s bank partners have required that each award bonus campaign – particularly if they are referral bonus programs – include a “circuit breaker” threshold (for example, following the first 10,000 accounts that have been onboarded after program launch), at which point they will pause the program to review its effectiveness and to ensure that accounts being opened as a result of the program are not fraudulent or engaging in fraudulent activity.
This threshold does need to be communicated to end-customers or included in the program terms and conditions, as the associated terms should include language on the condition that the program can be ended at any time at the client’s sole discretion.
Please note that for referral bonus programs or other one-time incentive rewards, Unit’s bank partners may require that clients hold the total amount of funds necessary to cover all potential reward bonus payouts in a Reserve account to ensure that the funds are available for reward fulfillment.
Unit provides a flexible platform that makes it easy to implement rewards and be creative with what activity you incentivize. You are not limited to creating rewards like the below examples.
Some examples of Unit customers who have implemented rewards are:
All Rewards programs must be reviewed and approved by Unit and the bank partner prior to launch.
One of the most important aspects of any rewards program that is presented to Unit and your bank partner for approval will be how you plan to establish controls to govern the parameters of your rewards program to ensure it is implemented according to the Terms & Conditions presented to end-customers, as well as the marketing and advertising pertaining to the rewards program.
Here are a few examples of the more common rewards program parameters that you will want to make sure you are able to control and test for:
Cash back rates. Whether you are offering a flat 1% cash back on all debit card purchases, or a more dynamic cash back program that offers different cash back rates for different purchase categories or merchant types, our bank partners will want to see that you are able to test to these parameters and establish the appropriate controls to ensure that all cash back is rewarded according to how it is being advertised and that all cash back redemption and fulfillment is accurate to how the structure is defined in the terms and conditions.
Reward fulfillment. Similar to the above, you should ensure that you are providing rewards redemption and/or cash back fulfillment to customers within the established time frame communicated in the program terms and conditions. For example, if all cash back will be credited to the customers’ accounts immediately upon purchase, your bank partner will want to ensure that you are able to test and confirm that this fulfillment time frame is being adequately adhered to.
Reward caps, eligibility, restrictions & minimum balances. Depending on what kind of rewards program you are planning to offer (whether it’s a cash back program, referral bonus, or merchant-specific rewards) to customers, you may want to include certain caps or restrictions to limit the amount of rewards paid out in a certain time period. For example, you may want to limit cash back rewards to $1,000 in purchases in a calendar year, or you may want to enforce a minimum balance restriction or other eligibility requirements to customers earning rewards to incentivize deposits or reward other activities on the platform. In doing so, your bank partners will also want to ensure that you have a method for testing and evaluating that the controls in place to enforce these caps and restrictions are adequate.
For sweepstakes or lottery-type rewards programs or bonuses, the requirement for these types of giveaways—where there is only one chance to win a prize—is that it must be open to the general public, even people who are not accountholders. From a financial regulatory standpoint, Unit nor our bank partners will approve giveaways that are structured as games of chance or lotteries in which there is a barrier to entry.
Here’s a helpful example to consider when thinking about how to distinguish between rewards programs and sweepstakes or lotteries. In this example, there are two programs. In the first, the prize value is limited so that it is equal to or less than the amount of the debit card transaction that earned the entry. Since a game is only a “lottery” if you have a chance of winning more than you “paid,” this is a fairly safe model.
However, in the second rewards program the customer can win substantial sums of money or a car by completing tasks and making transactions to earn entries. In this rewards program structure, because there is the potential to earn a prize or reward valued at much more than the considerations that the customer provided to gain entry into the sweepstakes, this would be considered a game of chance, and thus a “lottery” by standard definition.
A rewards program may be considered a lottery if:
- There is a game of chance;
- Entries for the game are earned by paying money to another person, whether or not the other person is the bank or anyone working with the bank (this would include making deposits, using a debit card for POS transactions, etc.);
- One or more people can win a prize with monetary value; AND
- The value of the prize may exceed the amount paid to earn entries (e.g., exceeds the amount of deposits and/or amount of debit card transactions).
At this time, Unit’s bank partners do not allow for rewards programs that may be considered a lottery.
The main distinction between whether you are offering a bank-approved rewards program to end-customers or a client-sponsored rewards program is determined by how the rewards program is administered and through which accounts the end- customer account the rewards are paid out to.
For example, a bank-approved rewards program is a program that has been approved by Unit and your bank partner, and wherein the rewards or cashback redeemed by and paid out to end-customers is done so through the Unit banking ecosystem (e.g. the cashback earned by end-customers from your cashback rewards program is automatically deposited into their Unit account and paid out from your Unit operational account using the Rewards API.)
Alternatively, a client-sponsored rewards program defines all rewards programs or bonuses that are offered to end-customers outside of the Unit banking product or Unit account ecosystem, and financed independently from an external account not within the Unit org.
It’s important to note that when marketing a client-sponsored rewards program in conjunction with any Unit banking product (either within the same piece of marketing collateral, on the same website landing page, or similar), that the client-sponsored rewards being offered are clearly and conspicuously called out as being separate from the Unit-offered banking product with a disclaimer included in close proximity that reads as follows:
- “[Cashback/Incentive/Bonus] Rewards are provided by [Client Name] and not through [Bank Partner Name]. See Terms & Conditions for details.”
The Terms and Conditions for any Rewards Program should clearly and accurately describe how the program works. Please find below a non-exhaustive guide of items that must be included:
Terms for the Rewards Program should include detailed information regarding the eligibility and enrollment requirements, if any, that are applicable for the end customers participating in your program.
- If there are separate requirements for enrolling or if there are certain eligibility requirements that may restrict some account holders from joining the program (for example, a stipulation that the account holder must have an active account for 6+ months before earning cash back), then those restrictions must be detailed within the program terms.
- In addition, if there are any minimum balance requirements or minimum deposit requirements that can restrict an account holder’s participation in the program, that information must be disclosed as well.
- Bank partners will require information pertaining to any caps or limits on the number of eligible customers that can receive a rewards bonus, in the instance of referral bonus programs, or any other incentive bonus structures where the rewards are limited to a finite number of end-customers. (For example, if a client wishes to offer a referral bonus that will award $10 to each customer who refers a new member to the platform if that member deposits a minimum of $100 within their first month after account opening, and this $10 bonus will only be available to the first 20,000 customers who are eligible and meet those criteria, then that cap must be included in the terms and conditions of the program.)
The terms should also disclose, in sufficient detail, the process for earning rewards and how the cash back or points amount is calculated.
- The requirements for earning rewards should be detailed in a clear manner and should include all purchases or transactions that are eligible to earn rewards, as well as any purchases or transactions that will not earn the account holder rewards.
- Terms should also clearly and concisely detail the process for how cash back or points-based rewards are calculated, as well as any extraneous stipulations that may affect an account holder’s rewards accumulation or balance.
- For example, program terms should clearly outline scenarios such as returns or transaction reversals and how these circumstances may impact reward balance. If an account holder returns a purchase after having received rewards for making that purchase, are the rewards earned retracted from their account? Terms should include detailed explanations of these scenarios to limit risk and liability.
In addition to how the rewards can be earned by account holders and any stipulated restrictions that may prevent the earning of rewards, program terms must also outline and describe in detail the process of reward fulfillment and when account holders will be receiving the earned rewards in their account.
- Cash back or points-based reward fulfillment can vary depending on the program and depending on how the rewards are earned, but can range anywhere from daily reward fulfillment (account holders receive the cash back in their account the same day that they make a qualifying purchase on their debit card) to weekly, monthly or even quarterly or yearly.
- Whenever the fulfillment period is for your Rewards Program, please ensure that the terms clearly outline the process involved in how the rewards are allocated to an user’s account, as well as how the account holder is able to access their rewards and any information related to reward redemption or withdrawal, if applicable.
- Furthermore, if there are any caps or limits to the amount of rewards (cash back, points or otherwise) that an account holder can earn in a certain period of time (for example, if the account holder can only earn up to $1,000 in cash back in a calendar year), those limits or caps should be clearly disclosed in the terms as well.
- The terms should also cover whether returns or transaction reversals affect earning and redemption of rewards.
Program terms for rewards should also cover the process for redemption or withdrawal of earned rewards for account holders who have closed their account, or have accounts that are not active or in good standing. Terms should also disclose what will happen to an account holder’s accrued but unpaid cash back for all cash back programs.
- For example, if an account holder has earned rewards on qualifying transactions, but the rewards will not be deposited into their account until the end of the month, however the account is closed prior to the month’s end, terms should outline what happens to the account holder’s accrued rewards in an event like this, as well as whether or not the account holder will still be entitled to withdraw or redeem those rewards.
Since many Rewards Programs may require you using the bank transactional data for a purpose other than the purpose for which the bank/Unit is sharing the data, the terms for the program should disclose in detail:
- The extent to which you will be leveraging bank data to inform the rewards earning and redemption process
- Whether any additional information will need to be disclosed to the end-user that requires an opt-in or documented consent from the account holder in regards to privacy and data collection or data sharing.
As it pertains to the collection and utilization of account holder transactional data, the terms should outline clearly the process involved in obtaining and using bank transactional data on the user’s behalf to provide them with the requested service, and the extent to which you will be storing and sharing this data.
The terms should outline a clear mechanism for how you will obtain consent from the account holder to opt-in to this usage of their bank transactional data, as well as how you plan to document this consent for future audit purposes.
This should appear in the Terms and Conditions for the rewards program and, as a best practice, on-screen during the sign-up flow.
If data is to be shared with third parties for purposes not subject to one of the Regulation P exclusions from notice and/or opt-out requirements, you will need to implement an opt-out process.
Now that you understand what is required to create rewards, you're ready to build rewards into your product. The Rewards API is simple and flexible, making it easy to implement and track rewards programs. Read the Rewards API documentation to learn how to implement rewards.
When it comes to the administration of bank-sponsored rewards programs and bonuses, Unit and our clients have an ongoing requirement to ensure a robust audit trail to support all Bank and Regulatory Reviews. Such an audit trail should include the ability to test complaints related to rewards/bonus offers and validate successful fulfillment of the reward offered.
Unit Compliance will work with clients to ensure these audit trails are established and to set expectations for what is required from a reporting and testing standpoint for all bank-sponsored and approved rewards programs.