On Feb. 7, financial institution OMB and digital platform Bits of Stock announced an agreement that allows OMB to provide customers with the ability to earn fractional stock rewards on debit card transactions.
They can also automatically round up purchases to increase their investments.
A deal whose seeds were planted at Dealmakers West sprouted at Dealmakers East. It shows the importance of investing in quality networking and business opportunities like those available through Fintech Nexus.
Building a better reward program with stocks
Bits of Stock CEO Arash Asady began his finance career on trading desks before focusing on helping the underbanked and underinvested to access wealth-building opportunities. Letting consumers build wealth while they shop dovetails nicely, and allows banks and brands to build loyalty.
“These companies are spending hundreds of billions of dollars a year globally on rewards and loyalty programs: coupons, gift cards, and incentives programs,” Asady said. “Often, they remain inactive or go to waste. Many points aren’t redeemed, so they’re not benefiting the customer.
“But they’re also not benefiting the banks and brands rewarding those customers. We had to figure out a way to help customers build wealth, particularly those who need it the most, and do it in a way that builds loyalty and deepens existing relationships between customers and banks and brands.”
OMB sees stock rewards as a differentiator
Over the past couple of years, OMB organically more than doubled its assets under management to $1.2B, COO Stephen Bishop said. As it seeks a national presence in a crowded marketplace, Bishop wanted a differentiator.
Asady and Bishop didn’t have a formal meeting booked at Dealmakers West in August 2022. They sat at the same table at a networking event and started a conversation. It continued the next day and over the following weeks. The interest was piqued.
“That’s the part of Bits of Stock (that stands out),” Bishop explained. “It’s something that differentiates us; it’s something that other banks and other financial institutions aren’t doing, or at least not yet. So we have a first-mover opportunity.
“Like Arash said, it’s helping people that wouldn’t necessarily invest in stocks start to acquire that wealth and helping the community. That’s what we’re trying to do as a community bank. So it helps us solve our long-term cost of funds, and as we deliver that to the market, it also helps the communities and the consumers in America.”
Bits of Stock brings a novel product. OMB can help it get online via Jack Henry core banking and Banno digital banking platforms. That will introduce it to millions more consumers, Bishop added.
Tech makes multiple use cases possible
You can look at the history of financial markets in phases, Asady said. Decimalization allowed for early stock fractionalization. Now stocks can be traded in dollar amounts, not share amounts. That will enable hundreds of millions of investors to get their piece of blue-chippers.
The technology brings opportunity for creative rewards programs that engage consumers far more than current options, Asady said. Imagine earning stock in your favorite coffee brand with every cup. Top it up to the next buck and earn even more.
“The technology is an accounting procedure where customers are allocated a fraction of a whole share on your books, and you, as the broker-dealer, manage those accounts and hold individual shares to offset all the fractions of shares that you’re giving to your customers,” Asady said. “It enables customers to own a piece of the whole share that you have on your books.”
Bishop said the technology could enable a variety of use cases. Customers can choose stocks, and solutions can be built out of the box. It depends on the partner’s needs.
While the details still need to be worked out, Bishop said he could see a roundup feature that flows into an investment account. Perhaps customers get a certain percentage back when dining out.
“We’re still defining what that is,” Bishop said. “One of the nice things about Bits of Stock is having them work with us to define what that is so it meets regulatory needs. But we can also have niche markets, and we’re going to have other niche brands.
Stock-based reward programs increase adoption, loyalty
Bits of Stock recently completed a study with NYU’s Stern School of Business. It found that stock rewards yielded a 16X ROI for issuers, making it 50 times more effective than cash-back options. Customers increased spending frequency and amount by more than 20% when they had a card that offered stock rewards.
“We found that with merchants that were rewarding customers with stock, those customers were allocating a lot more of their share of their wallet to those merchants,” Adany said. “The monthly consumer spend with those merchants increased 51% in the first three months.”
“It validated this simple idea that if you can turn customers into your shareholders, they’re going to be more loyal to you because there’s a lot of psychological behavior and science behind it.”