“The banking industry has launched a new initiative that will bring deals and discounts to consumers through the banks themselves. Banks have begun selling consumers’ personalized information to merchants who in turn offer deals based on spending habits or other criteria.”
I think it was CNN Money that first reported that consumers’ data was being “sold” by banks to merchants and retailers. Unfortunately, this is nowhere near the truth.
Here’s how it — what Aite Group calls merchant-funded incentives — works:
1. Retailers and merchants tell banks what kind of customers/prospects they want to reach. For example, Staples might want to reach consumers who have spent a certain amount of money within a given time frame at competitors like Office Depot. Or a QSR might want to reward existing customers who have eaten at the restaurant a certain times in the past 30 days with a discount on the next meal purchased at the restaurant.
2. Offers are extended when consumers login to their bank accounts online. Increasingly, the offers will be made through mobile devices, as well. Consumers can opt to view the offer, accept it, then redeem it with the retailer/merchant. Consumers can opt-out of seeing the offers. And if not available right now, I’m sure that sometime soon, they’ll be able to choose which product categories they want to see offers for and which ones they don’t want offers for.
You’ll note that nowhere in the description of how this works is there any reference to data being sold by the bank.
There is one aspect of the reports from NPR, CNN Money, and RWW that is on the money: Merchant-funded incentives have the potential to take a good chunk out of the daily deals market. Here’s why:
- Relevancy. When Sally’s Nail Salon does a Groupon deal, all it knows is that its offer is going to go out to however many email subscribers Groupon has in that particular market. As a result, people like me — who have spent all of $0 at a salon in the past 30 years — get Sally’s offer. With merchant-funded incentives, Sally’s offers are only sent to consumers who either have purchased in that category, or if Sally believes that there are other product categories that are good predictors of salon purchase intention, offers can be made to consumers that make purchases in those other categories.
- Accountability. The beauty (get it?) of the merchant-funded incentives approach is that the bank can tell Sally how many consumers meet her offer criteria, and then track offers and redemption rates.
- Economics. It’s at least a few years out, but when merchant-funded incentives can reach a majority of consumers through financial institutions, merchants and retailers will be able to significantly reduce their marketing investments in other channels. They’ll be able to stop putting FSIs into newspapers, and they’ll be able to cut back on mass media advertising. Oh — and they won’t be giving 50% of the transaction value to the banks, like they do to Groupon.
I hope this clears things up. No data is “sold.” And while merchant-funded incentives might not “kill” daily deals, it will take a good chunk of the market.