Large scale adoption of more sophisticated marketing and analytics platforms based on bank transaction data through card-linked marketing is providing financial institutions with both a significant new customer engagement and retention tool as well as a new revenue channel. Based on positive ROI, the market opportunity tied to such platforms is projected to grow even more, with analysts projecting card issuers’ annual revenue from merchant-funded incentive programs more than quadrupling over the next four years, amounting to $1.7 billion by 2015 from about $300 million presently.
As with any new channel that proves viable, analytics platform providers are now enjoying a significant amount of interest from investors. The inevitable result, of course, is the emergence of a growing number of solutions in the marketplace, each with a different approach in offering and execution.
With so many options now available, what are the key considerations that financial institutions should evaluate in establishing their own marketing and analytics programs to best leverage transaction data? Perhaps the best response to this begins with the retailers that have been drawn so strongly to this new marketing channel. In looking through a retailer’s lens: what is driving this?
The first factor banks must consider is scale – the ability to reach a large enough audience to move the needle for the retailer.
Opt-In vs. Opt-Out
Many solutions require opt-in participation, which has a major impact on scale because of the low success rate. Customers are asked to take a path outside their normal navigation to a sign-in page where they are then prompted to enter personal information.
As an alternative, “Opt-Out” rewards programs have proven to be more successful. Customers are pre-enrolled and such programs require fewer steps to participate. Currently, some programs have customer opt-out rates below two percent.
“In the Bank” vs. “Outside the Bank”
Some solution providers offer the ability to link card transactions outside the banking experience. These offers are typically embedded as a feature within online display advertising and come with similar challenges as opt-in programs.
The most effective way to reach consumers is by leveraging a solution that maintains a direct partnership with the retailers, whereby the offers are embedded within the customer’s daily digital (online or mobile) banking experience. To achieve this method, banks should invest in software that is hosted and controlled by the bank in the bank’s data center and where offers are distributed in secure bank channels. Customers are more willing to interact with offers in the safety of their banking environment. In fact, the average ‘in-statement’ click rate is 20 percent.
Another factor to consider is engagement – the delivery mechanism for the offers and messages.
Credit vs. Debit
Many rewards programs are aligned with pure credit card portfolios. Credit card portfolios deliver big customer numbers, but present significant challenges in targeting and engagement. Today, more than 75 percent of non-cash transactions are made with a debit card.
The use of debit cards has risen at a double digit pace over the past five years and this trend is projected to continue. In addition, debit card customers average nine visits a month to their online banking site alone (and many more through their mobile device) versus credit card users whose average visit is less than once a month.
Implementing a marketing solution that is made up almost entirely of debit card portfolios is likely to be more successful. Combining debit and credit portfolios is most effective because the result is a more holistic customer view that allows a consumer to use an offer on either their debit or credit card based on holistic purchasing patterns.
A third factor to consider is targeting – the ability to accurately target offers to consumers.
Solution providers have different levels of access to transaction history and targeting capability. For example, several solutions only have the capability to target based on whether or not a consumer has previously done business with a particular retailer. This ‘binary’ targeting capability can affect both campaign targeting and post-program analytics.
To avoid this challenge, institutions should implement a solution that has full access across all transaction data to determine the size of the opportunity. Additionally, having the ability to deliver different offers and messages to different segments within the campaign based on the consumer’s history is important. Offers need to be customized as needed by the retailer and personalized for the consumer.
4. Offer Activation
A fourth consideration is Offer Activation – which refers to a solution that requires a consumer to ‘accept’ the offer.
Solutions that do not require Offer Activation come with huge challenges for retail customers. Without the consumer providing the specific act of showing interest in a specific offer, the retailer is unable to prove what drove the customer action. This results in reward subsidization and fee subsidization where retailers end up paying for revenue they were going to obtain anyway.
Implementing a solution that requires the consumer to activate the offer, thereby showing specific interest in that specific offer, is crucial – this is the only way to accurately attribute the purchase with the specific card-linked offer (rather than TV, Radio, Direct Mail or print advertising). Having the ability to measure the precise impact the offer has in changing consumer spending behavior as measured versus a control group means the retailer is only being charged for incremental results.
5. Privacy Protection
Privacy is the most critical consideration to the industry.
In general, the closer the relationship with the bank, the tighter the controls are on consumer privacy. No personally identifiable or transaction level data should ever leave the security of the bank.
Some loosely integrated solutions require that transaction data be taken outside of the bank’s secure environment, collected by the provider and housed at the provider’s facilities. This solution requires transaction data to be placed under the control of someone other than the bank. Other providers have absolutely no integration with the bank, requiring the consumer to enter their personal information – including their card details.
Working with a provider that partners with the bank by installing a version of its software on the bank’s hardware – behind the bank’s firewalls and completely under the control of the bank – eliminates the risk of housing consumer’s personal information outside the bank. Transaction-level data never leaves the bank and the consumer never has to enter their personal information.
Lynne Laube is co-founder and COO of Atlanta-based Cardlytics, a marketing and analytics platform built upon historical consumer purchase information.