Are physical loyalty cards still effective?

They can be, but their role has shifted. A physical card works best as one entry point into a broader program, where the data behind the card feeds into a system that also supports digital touchpoints. The brands getting the most from physical cards treat them as an identification layer that connects to richer program logic underneath.

What percentage of customers use loyalty programs?

Nearly everyone is enrolled, but the gap between enrollment and active use is the real story. Based on EY findings, most companies report that fewer than 40% of enrolled members are actually active. That means the real edge comes from closing the gap between sign-up and regular participation, which is where program design, personalization, and channel flexibility matter more than raw membership numbers.

How do digital loyalty cards compare to physical ones for customer retention?

Digital programs have a structural advantage: they can learn from every interaction and adjust what members see in return. That said, retention depends on the quality of the experience and how frictionless the program is. Notre Dame research warns that poorly designed app-based programs can increase price sensitivity rather than build loyalty.

What are the biggest challenges in moving from physical to digital loyalty?

The hardest part is usually changing customer behavior, especially for demographics that have used a physical card for years. The transition works best when brands introduce digital options alongside existing physical ones rather than forcing a switch. On the operational side, the most common blocker is data fragmentation across systems that were never designed to talk to each other.

Marketing

17 Apr 2026

Customer loyalty cards: Do they still work in a digital world?

Reza Javanian

Talon.One loyalty expert

9 minutes to read

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The average American belongs to 18 loyalty programs and actively engages with roughly half of them. That gap between sign-up and actual use tells you a lot about the state of customer loyalty cards.

Loyalty program enrollment has hit near-saturation levels. The same EY study (surveying more than 1,600 U.S. consumers) found that 92% of respondents are enrolled in at least one program. But enrollment and engagement are different problems. EY's corporate survey found that most companies report fewer than 40% of their enrolled members are actually active, and only a small fraction see engagement rates above 80%.

So, do customer loyalty cards still work? The answer depends on what you mean by "work." It also depends on who your customers are and whether you're willing to rethink what a loyalty card can be.

What does the customer loyalty card landscape look like right now?

The short version: mobile is winning, but physical cards are holding on.

How people enroll tells a similar story. EY data shows 35% of customers now enroll via company websites and 30% through brand apps, while in-store checkout enrollment holds steady at 16%. Physical enrollment is no longer the front door, but it hasn't disappeared.

The bigger shift is on the company side. EY data shows organizations offering loyalty programs through all channels simultaneously grew from 31% in 2024 to 40% in 2025. Businesses are consolidating toward integrated delivery instead of picking one channel and hoping for the best.

That shift matters because channel preference is fragmenting. Some members want the app. Others want email. Some still want a physical object in hand. The strongest pattern gives customers multiple ways in.

Do physical loyalty cards still deliver results?

Yes, with caveats worth paying attention to.

Physical cards maintain real value for specific demographics, specific industries, and as part of a broader program. EY data shows customers 55 and older are the least likely to download a loyalty app and the most likely to prefer email as their communication channel. An AARP report found that half of adults over 50 worry about security and data misuse in digital tools. That creates a structural barrier that physical card programs don't face.

In grocery and pharmacy, physical cards still function as active infrastructure. A Javelin report names paper punch-out tickets and key fob-based gas rewards as current, operational program formats.

But the nuance matters. Physical format doesn't mean low data intensity. A Vanderbilt paper points out that grocery loyalty cards may look physical on the surface, but behind the counter, they function as data collection infrastructure for detailed shopper profiles. The card starts the interaction. The value comes from what gets collected.

The risk of going physical-only is a lower ceiling. Physical cards can't surface relevant offers in the purchase moment. They can't adapt to individual behavior in real time. That matters because personalized promotions produced increased sales for 62% of organizations in Talon.One-sponsored HBR Analytic Services research. Physical-only programs also make it harder to identify inactive or lapsed members.

What's actually pushing loyalty programs toward digital?

Customer demand is part of the story. EY data shows that among those using loyalty apps, 41% use them one to two times per week.

But digital's strongest pull is what it lets the business do. Consider what is happening at scale:

Smarter segmentation. Digital programs can segment members by behavior and value much more precisely than physical-only systems. That matters when your best customers and occasional shoppers should not be treated exactly the same.
Cross-channel earning and redemption. Earning and redemption can happen across more touchpoints, including in-store, online, and other service channels, which expands program reach beyond app-only participation.
Lower friction. Reducing friction around identification and check-in can materially change visit behavior because customers don't have to reorder their habits around the program.

Digital loyalty programs create behavioral feedback loops that physical programs struggle to replicate. The business learns more about customer behavior. The customer experience becomes more relevant in return.

Why building an app alone won't solve your loyalty problem

Going digital sounds appealing. In practice, this is where many loyalty programs stumble.

The problems span access, trust, rewards, and infrastructure.

The digital divide is a business risk. One industry report notes that a large share of guests still pay with cash. That requires a loyalty program that reaches beyond app-only access. If your program excludes customers who already spend with you, the math breaks.
Bad digital experiences damage brands. An Incisiv/FMI study found that 88% of grocers said a poor third-party digital experience can push customers away from their brand. Another 76% said bad web or mobile portal experiences can damage the business. When redemption rules work differently online than in-store, or points balances don't sync across channels, trust erodes fast.
Apps can increase price sensitivity. Notre Dame research found that when customers use an app to earn and spend reward points, they tend to migrate toward the brand offering the deepest discount in the moment. A program built only around discounts risks attracting low-margin, deal-seeking behavior.
Infrastructure is often the real blocker. A Forrester report found that 78% of U.S. B2C marketing executives concede their marketing and loyalty technologies are siloed. In those environments, points earned in one channel may not be redeemable in another. Personalization stalls too, because the data isn't unified. Info-Tech Research Group identifies legacy infrastructure, fragmented ownership, and unclear success metrics as the three conditions that most commonly stall loyalty modernization.

This is where technology choice becomes consequential. When loyalty and promotional logic run together in one system, the points-not-syncing problem gets easier to solve. So does the contradictory-promotion problem. The Talon.One-sponsored HBR Analytic Services report found that 60% of organizations saw improved customer loyalty from integrating promotions and loyalty strategies.

What does modern loyalty look like beyond the traditional card?

The loyalty landscape is moving in several directions at once. Here are the trends reshaping what customer loyalty cards can do and be.

Gamification as a first-class loyalty strategy

The shift from passive earn-and-burn to interactive, game-like mechanics is gaining momentum across industries. Sephora launched Beauty Insider Challenges with Talon.One as a strategic partner. The program combines online and in-store actions, generated two million new Beauty Insider signups, and tripled participation versus original forecasts. Gamification works best when it turns loyalty into something customers actively do, rather than something they passively accumulate.

Sephora loyalty program

Image source

Loyalty at the moment of purchase

A structural shift is moving loyalty from after the sale into the purchase moment. This is the idea behind cart-native loyalty. Customers can see what their points are worth, which rewards they have unlocked, and what they are close to earning while they are still deciding what to buy. When loyalty program value appears only at checkout, it is often too late to influence the purchase. When it shows up as someone browses and builds a cart, it can change behavior. In practice, this means using systems that evaluate loyalty status, offers, and challenges together during the session instead of treating them as separate layers.

Paid and subscription loyalty tiers

Customers are increasingly willing to pay for premium loyalty experiences. The model is spreading across retail and food brands. Subscription fees provide predictable revenue. Paying members also signal committed engagement before any purchase.

The RealReal’s loyalty program elevates the luxury resale experience.

Image source

Experience-driven rewards

EY data shows a growing share of companies have added experiential rewards as a loyalty improvement in the past 12 months. Bond research found that special access and personal experiences have become the top driver of loyalty value. That marks a meaningful shift away from pure transactionalism. The value is status and belonging.

What does the ROI of loyalty programs look like?

The business case for loyalty, when programs are well run, remains strong.

Bond research covering 22,000-plus customers across 400-plus programs found that 85% of members say programs make them more likely to continue purchasing from the brand, and 74% change how much they spend to maximize benefits.

But the numbers also carry a warning. EY findings show that only 43% of customers in 2025 say loyalty programs increase their spending, down from 58% in 2024. And 18% of consumers feel not at all connected to the loyalty programs they belong to. Programs that coast on basic earn-and-burn mechanics are losing effectiveness in real time.

How to build loyalty that works for every customer

The real question is whether your program can serve both physical and digital members without breaking.

A few practical starting points:

Keep physical touchpoints if your customers still use them. Older demographics and grocery are both contexts where physical cards retain real value. The goal is to make sure the data flows somewhere useful regardless of format.
Treat the transition as a spectrum. Brands can move from card-based participation to digital identification in different ways. The right path depends on how often customers visit, how they pay, and how much operational complexity your team can absorb at once.
Build infrastructure before flashy features. In grocery especially, the backend often determines whether loyalty feels connected or fragmented. A useful pattern is card-linking that removes the need for a separate loyalty card while still supporting omnichannel points earning and redemption across a large store network. The physical identifier becomes less important than the system connecting them.
Measure what matters. Brands with mature programs increasingly disclose loyalty-attributed revenue as a key program metric. That tells you more than enrollment counts ever will.

Customer loyalty cards still work. Physical cards still work in the right context. What fails is treating loyalty as a static program instead of a living system that evolves with your customers. The brands pulling ahead are unifying loyalty programs, promotional campaigns, and engagement under one strategy.

Talon.One brings loyalty, promotions, and gamification into one real-time decisioning engine. Marketing teams can configure earning rules, tier logic, and cross-channel redemption through the Rule Builder without filing engineering tickets for every change. The platform's real-time response time means that whether a customer scans a physical card at the register or opens the app at home, the loyalty state stays consistent. The result is a program where physical and digital touchpoints feed the same system, and every interaction strengthens the next one.

"I don’t have a technical background, but Talon.One makes me a highly effective contributor. I can build and launch complex campaigns without needing to code."