While the impact of Dodd-Frank regulations on banks’ revenues continues to take shape, financial institutions have been forced to get creative in determining how to cost effectively continue to provide rewards programs for their customers. Today, bankers are evaluating alternative approaches, like transaction-driven marketing, which enables them to provide rich, targeted customer rewards without having to rely on interchange fees to fund the programs (as the rewards are completely funded by advertisers).
However, as digital channels speed the evolution of marketing, bankers are challenged to clearly understand the implications of these changes - while still fulfilling their obligation of protecting consumer privacy. On top of this are legitimate concerns that bankers have in response to a number of recent high profile cases (such as the potential sharing of Apple iPhone users’ information without their knowledge and consent). Bankers are justified in their concern and are right to be cautious when evaluating any marketing program and its impact on the security of their customers’ privacy.
From a marketing standpoint, an important distinction for bankers to understand is that transaction-driven marketing is fundamentally different than what is known as behavioral marketing. Most of the notable cases such as the one listed above are examples of behavioral marketing, which relies on the gathering of personal information including name, email, geographic location, etc. in order to work. Unlike behavioral marketing, an appropriately deployed transaction marketing solution should not rely on any personal information or require the release of personal information to third parties in order be successful.
However, it is timely to deploy a transaction-driven marketing solution now because there are reward program providers deploying incentive programs that leverage a consumer’s transaction data by taking it away from the bank. This is fraught with danger in terms of breaking good privacy practices.
So how can bankers ensure that their customers’ information is truly secure? A simple litmus test is to ask: Does your solution require the consumer to enter their bank account user names or passwords for any reason other than to gain access to their bank accounts? Does the transaction data ever leave the security of the bank’s data center? If the answer to either of these questions is ‘yes,’ your customers’ personal information may not be safe and you could be opening your institution up to negative attention and scrutiny.
The best transaction marketing programs protect consumer privacy while enhancing customer satisfaction and building loyalty through a tightly-integrated customer experience where offers are viewed without relying on emails or SMS or asking a consumer to leave their bank account. Offers should be redeemed using the payment vehicles that a consumer uses every day. In other words, the solution shouldn’t require a bank customer to change their actions; it should integrate seamlessly with the customer’s everyday life. Some best practices for consideration among bankers include:
How to Protect Consumer’s Personal Information, but Still Provide Value
Transaction marketing is designed to protect consumer information and put the consumer and the bank in control – not marketers or advertisers. To achieve this, financial institutions create an arbitrary Account ID for each account holder. Only the bank should know the correlation between Account IDs and Account Numbers. The bank then matches offers to suitable transactions associated with that Account ID. No personally identifiable information should ever be used in placing the targeted offers and no transaction data should ever leave the security of the bank’s data center. With this approach, all consumer personal data will remain secure within the financial institution at all times.
How to Ensure a Successful Program without Providing Personal Information to Third Parties
The easiest way to avoid giving information to third parties is not to collect it at all. The safest transaction-driven rewards programs never have access to, or ask for, consumers’ personal information. By leveraging the arbitrary Account IDs rather than relying on personally identifiable information, campaigns can be built around specific customer purchasing characteristics while never disclosing any personal information about the consumer. Financial institutions then route retailers’ offers to the bank accounts of consumers that meet predetermined purchasing characteristics. Because this approach does not require access to personal account holder information, no personally identifiable information is ever provided to advertisers or third-parties. The only information that should ever leave the bank is aggregated results of the campaign (i.e. how many offers were served; how many offers were activated; how many offers were redeemed; and how much was spent in redeeming offers).
How to Maintain Customer Satisfaction by Providing Easy Opt-Out Options
Account holders should always have the ability to easily opt out of the program at any point if they wish. As account holders, consumers expect their financial institutions to provide them with access to programs that can help them save money. Transaction-driven rewards programs should only be presented to banks’ account holders through the secure environment of their online or mobile banking channels.
Tracking Software Not Required
Very simply, there should be no use of tracking software in transaction marketing. Transaction-driven rewards programs should be designed around established purchase preferences of account holders and are redeemed only when an account holder chooses to use his or her card at a participating advertiser. Since the program does not collect or ask for any personally identifiable information, such as consumers’ names, emails, addresses, bank account names, bank account passwords or phone numbers, banks’ customers can enjoy the benefits without worrying that their information has made it into an advertiser’s hands without their consent.
Unlike many marketing programs, consumers actually benefit financially from participation in transaction-driven rewards programs through cash-back rewards on established everyday purchases. On average, consumers can benefit from $100-$200 in savings per year and there is no cap on the potential savings. Because the rewards are presented in their online and mobile bank account statements, it reinforces the perception that their bank, not the merchant, is providing the reward. This not only helps maintain current customers, but it can potentially attract new ones, resulting in additional revenue for the bank.
Scott Grimes is founder and CEO of Atlanta-based Cardlytics. Scott was a former senior vice president at Capital One and a partner at McKinsey & Co.