How can financial institutions reward debit card users who use online channels — i.e., the best customers? Cardlytics has a solution which costs banks and credit unions absolutely nothing. Sound too good to be true? Here’s how it works.
A typical consumer — we’ll call her Karen — stops into a home improvement store to pick up some items for her kitchen remodel job. When she gets home, she logs into her online banking account to check her balance. As she peruses her statement, she spots an offer from Home Depot wedged in between a few of her other recent purchases (example here). Home Depot wants to give Karen 5% off her next purchase if she accepts the offer, which she does. When Karen makes her next trip to Home Depot, she pays full price, but her bank automatically credits her account for 5% of the total as promised.
Karen, like millions of other financial consumers, are increasingly finding highly-targeted offers like these tucked subtly among their online banking transaction records. Banks such as BofA, Regions and PNC run customers’ past purchase histories through Cardlytics’ system to predict what offers people will be most likely to engage with next. By taking advantage of the offers she gets while banking online, savvy shoppers like Karen can save hundreds of dollars every month. At the end of the month, Karen gets a lump sum for her accrued savings deposited directly into her account.
It’s a triple win for everyone. Karen saves money shopping at her favorite retailers who in turn enjoy increased sales, all made possible by a value-added service that doesn’t cost her bank a penny to provide.
Predictive Analytics Based on People’s Purchases
How can all this be possible? The ability to dissect and analyze banking consumers’ spending habits using real transaction data provided by banks and credit unions.
“There is no better way to predict what consumers are likely to buy than by looking at what they’ve bought in the past,” Cardlytics President and COO Lynne Laube likes point out.
This isn’t news to big name retailers who have learned to exploit consumers’ spending patterns with unimaginable precision. They know how to pull the right combination of levers to get the right offers in front of the right folks at precisely the right time. For major brands, it’s become a surgical science. That’s why companies like WalMart, Starbucks and McDonalds are willing to give Cardlytics big money to get their offers in front of bank’s customers — people like Karen.
From a bank or credit union perspective, offering the service would appear to be a no-brainer. Financial institutions can reward their customers with relevant discounts — for free. 100% of Cardlytics revenue comes from merchants, hence why this type of service is commonly referred to as “merchant-funded rewards.”
Cost (or the lack thereof) isn’t the only thing financial institutions like about Cardlytics.
“It’s easy to implement, and low impact,” says Cardlytics client Beth Jaskiewicz, SVP/Marketing at South Carolina FCU. “We don’t have to get our front line staff involved, and our members appreciate the extra savings.”
Jaskiewicz says she hasn’t noticed a ton of members redeeming offers, but those that do love the service. All the feedback she’s received so far has been positive.
South Carolina FCU branded its Cardlytics reward program Simple Perks, then promoted it with a little light marketing and incurred a handful of “soft costs.” But other than that Jaskiewicz says implementation been pretty painless. The only thing the credit union has to do is upload members’ transaction data into the Cardlytics system.
Cardlytics’ software is hosted on-site by the bank on its premises, while ads and offers are served from Cardlytics servers based in the US. Arbitrary ID numbers are assigned to actual customer accounts, allowing transaction histories to be transmitted to Cardlytics system where complex algorithms determine what ads will be shown.
To ensure that online statements are not “turned into a huge mall,” a maximum number of offers are extended to one customer at any given time. Cardlytics says the typical user who login in an average of nine times per month will see around 15 offers total, redeeming between one and three of them. There is no limit to the number of offers a customer can redeem, nor a maximum cap placed on the dollar amount they can save.
While Cardlytics’ offers are primarily delivered to consumers within the online banking experience, the company has solutions for essentially every digital channel used by financial institutions today. The majority of banks and credit unions that have deployed Cardlytics are integrating it into multiple channels — not just online banking. Some are using email, and about half are using mobile. A handful of financial institutions are experimenting with “proximity marketing,” the ability to geotarget offers at consumers in a specific location (like at a WalMart store). Cardlytics says plans to weave its offers into ATMs and social media channels is right around the corner.
EXAMPLES OF THE CARDLYTICS SYSTEM IN ACTION ON SMART PHONES
10x More Effective Than Plain Online Ads
Cardlytics says less than one percent of people click on an online ad, but more than 10% of consumers click on Cardlytics offers displayed within online banking systems. More than half of users click on a link to activate an offer within the first month.
According to Cardlytics, advertisers are realizing an average sales lift of $5.49 for each dollar spent on marketing to existing customers. Cardlytics says it is also able to deliver up to a 15% shift in category spend.
Rod Witmond, Cardlytics SVP/Product Management and Marketing, says the average bank customer will save $100 to $200 per year through the rewards program “without even really paying attention to it.” For those who fully optimize and take advantage of it, the benefits can grow larger — some payouts have exceeded $600.
Crossing a Line?
Some consumers are uncomfortable with the idea of having their banking data effectively turned against them for marketing purposes. To get a sense for how some people feel about merchant-funded rewards, all one needs to do is scan Twitter and the comments attached to articles on the subject.
“Ads in our digital bank statements? I think that’s going too far,” tweeted one person.
Regions customer Eric Rzeszut didn’t mince words with this comment he attached to a picture of his online statement: “Seriously Regions Bank? You’re inserting ads into my online checking register now? Screw you.”
Some consumers aren’t sure if it’s legal. “Are ads that appear in online bank statements and are based on past purchases a violation of privacy?” asked Shaun Dakin on Twitter.
Others have a more practical and realistic sense of acceptance: “How are ads appearing in online bank statements any different than ads appearing in email apps like Gmail?” wondered Gwynne Monahan.
Financial consumers uncomfortable with Cardlytics’ approach can get rid of ads by opting-out at any time.
Industry analyst Jim Bruene at Netbanker thinks consumers will eventually capitulate. “It reminds me of the advent of keyword advertising on search engines,” Bruene says. “At the time, there was concern that the technique — based on actual user queries — was an invasion of privacy. Perhaps, but it’s worked out great for Google, and most consumers benefit from the better-targeted ads as well.”
Critics Say More Local Offers Needed
Nearly 100% of the offers presented to financial consumers through the Cardlytics system are for a percentage off or a specific dollar discount. Presently, most of the offers are from big national brands like Burger King and The Body Shop. There aren’t many localized offers and merchants.
“Today, too many of these merchants are national chains and offers are not necessarily directly related to existing behavior,” Leimer wrote on his personal blog. “If you shop online and use your debit card at the Gap, does that mean that you also would use a coupon at Aeropostale? Maybe.”
“The big issue in this area is getting enough relevant offers in front of customers,” Leimer points out. “Merchants still must be convinced to go beyond the usual ‘3% off’ that you see everywhere.”
“Even though I really like the Cardlytics model, we need a few more things to happen,” says Leimer. “We need a few more BofA sized banking partnerships to drive adoption; we need to add more contextual and proximity-based merchant modeling; and recruit FI customer/merchants to fill in categories and location.”
“The inner beauty of the Cardlytics program is the ability to solicit small business and commercial customers to be a local participant in the program,” Marous says. “The challenge, however, is in how robust the models become, how many merchants participate (not just big box national stores), and most importantly, how committed the bank is to build a personalized loyalty program.”
Banks and credit unions can help Cardlytics generate local leads. Financial institutions on the Cardlytics system are invited to refer local retailers up to Cardlytics who will work directly with each business to get them set up. Cardlytics says the process takes about four weeks from start to finish.
For some mom-and-pop shops, the process might be too much to handle. Beth Jaskiewicz, who oversees the Cardlytics program at South Carolina FCU, says they’ve refered some local businesses to Cardlytics, but none have been able to pull the trigger yet. Jaskiewicz speculates it may just simply be burdensome for a small outfit with only a few employees.
Cardlytics says it’s working diligently on expanding its reach to include smaller- and more local businesses. The firm has recruited a 30-person sales force to tackle 30 different major metropolitan markets. Cardlytics says it is already working with thousands of different retailers.
Velocity on Cardlytics’ Side
Founded only four years ago, Cardlytics has been growing hand over fist. Cardlytics has steadily attracted attention from most of North America’s largest retailers, who now use the system to target offers to millions of consumers — those using debit cards and online banking systems at over 230 financial institutions. Thanks to its association with Fiserve and Intuit, Cardlytics has access to more than 70 million U.S. households encompassing 180 million consumers — that’s 56% of all Americans.
Indeed everything seems to be going Cardlytics way these days. The company recently got a fresh round of funding, enabling it to expand in (among other places) the UK. Good timing too, because Cardlytics was named “Best of Show” at FinovateEurope 2012, a conference popular among financial innovators. Also early this year, Cardlytics scored perhaps its biggest victory yet: BofA.