Personalised and location-based marketing tactics could be a catalyst for higher usage of mobile payments and could, in turn, unlock new business approaches. 

The ongoing electronification of daily lives – from consuming and using online apps, tools and services via a computer or mobile device, to the gradual decline of cash payments – means that almost every movement, purchase and communication that a consumer makes leaves behind a data trail of astonishing comprehensiveness.

Few institutions have more or better access to this information than financial services firms. Banks, payment providers and card issuers are still trusted with enough data to create a truly detailed picture of consumers’ likes, dislikes, favourite shops and restaurants, comings and goings and much more besides. In other words: the consumer’s individual profile.

Merchants, keen to make the best use of marketing budgets, are understandably keen to get their hands on this information. Imagine if, for example, fast-food chain McDonald's – rather than handing or mailing out offers to vegans, anti-capitalists, organic food fanatics and those that would not eat there, regardless of anything else – was able to detect when a once-loyal customer had begun to frequent Burger King for their fast-food fix, and target them with a 20% discount to tempt them back. It would not be an easy task for a burger chain alone, but identifying such an individual would not be difficult for a bank or other card issuer with access to years of transaction data.

Give and take

Times are tough in the card industry. Market forces and incoming regulation have had a serious impact on interchange fees. In the US, for example, the Dodd-Frank Wall Street Reform and Consumer Protection Act placed a cap on debit card interchange fees of $0.21 – with a little leeway to cover fraud costs – less than half the average $0.44 previously charged by card issuers.

So loyalty schemes and other perks, typically funded by issuers through these fees, have declined in availability. Many issuers, particularly in the US, decided to cancel their reward programmes or find another way to offer them in light of the interchange cap.

One solution is to get merchants to contribute towards loyalty programmes, in exchange for the extensive customer information banks have access to. Card issuers are not about to allow merchants to access their customer data, however. But at the same time, they may not have the time, technology or inclination to analyse it in the kind of way that would be useful to merchants. 

As a result, third-party platforms, such as Cardlytics and Cartera Commerce, have emerged as a gateway, signing up merchants willing to put some of their promotional dollars into discount schemes and issuers willing to offer this kind of solution to their card holders. The third-party platforms then provide the technology to integrate the two firms.

Typically, once a merchant decides to launch a promotional campaign to a specific customer segment – individuals who have been shopping at its competitors, for example – the third party takes those criteria and integrates the issuer’s card holder system accessing transaction data – usually in an anonymised way – to identify the desired customer segment. The issuer then presents the offer to the targeted customer, and the retailer pays a fee to the platform provider if it is redeemed.

How often do you use your mobile device to shop online

Getting personal

One of the most prominent examples is Bank of America’s (BoA) ‘BankAmeriDeals’ service, which offers savings to customers based on their previous spending habits. The system delivers discounts and offers based on the consumer's past spending habits through the bank’s online banking platform. If a customer decides to take advantage of an offer it is linked with their credit or debit card so that when they use it to make a purchase, the full cost of the purchase is paid at the point of sale and the discount is paid back to their account the following month.

The bank does not receive any extra income directly from either the customers or merchants involved. It does save on a conventional loyalty programme, however, and the system is likely to drive higher levels of card usage and boost account activity.

So far, the scheme is proving popular among customers, too, says a spokesperson for the bank: "We continue to see an uptick in the number of customers utilising BankAmeriDeals – the feedback is very positive. Our customers are saving approximately $1m a month."

BoA is not alone. Cartera Commerce, which operates a similar business model to Cardlytics, is working with three of the top four card issuers in the US, according to its vice-president of product management Andy Wolf. As for other card issuers, American Express has recently launched a personalised deals and offers element, while MasterCard and Visa have both been analysing customer data to help marketers in their targeted advertising efforts, with the latter even offering merchants the ability to send text messages to customers, based on their spending habits.

Going mobile

Issuers and third-party intermediaries say that these new services should be a win-win-win for all concerned. But for many, this is only the first step on the ladder – the ubiquity of smartphones is providing data which will enable new levels of personalised marketing as well as a delivery medium.

“If I know you like to get coffee in the morning, then the best time to suggest that is in the morning when you’re logging into the app on your mobile phone,” says Jason Brooks, managing director of Cardlytics’ UK Office. “We have this analytics engine data on past behaviour, which provides a very good sense of targeting. When you couple that with where somebody is at the time, it becomes even more powerful.” He adds that in the US the firm has found that integration with a mobile app led to about a 45% increase in consumer engagement with and redemption of offers.

This kind of technology is being rolled out elsewhere, too. In the UK, Project Oscar – the mobile wallet project launched by telecommunications firms Everything Everywhere, O2 and Vodafone, and subsequently rebranded as Weve – is planning to concentrate first on mobile marketing. 

Issuers also see promise in the technology. “The move to mobile… is a huge opportunity for us,” says Joanna Lambert, the senior vice-president of strategy and business innovation with American Express. “Getting to that real-time, personalised, customised interaction between buyers and sellers is inevitable.”

Regional differences

Thus far the US – with a longer tradition of award and offers – has led the way in terms of card-linked marketing as provided by companies such as Cartera and Cardlytics. Both firms, however, have their sights set of expanding into Europe, with the latter already involved in advanced discussions with a variety of banks in four or five European countries and planning on a mid-year launch, according to the senior vice-president of talent management and international expansion, Rod Witmond.

“The US might be ahead in terms of concept, but Europe and also Japan and Australia are way ahead of it in the use of the mobile app as a marketing device," he says.

For some, card-linked marketing is already airborne. Citi’s Centralised Offer Palette (COP) system, which currently operates in Singapore, Malaysia, Thailand, Indonesia, Philippines, Hong Kong, Taiwan and China, can read real-time transactions made by the customer and cross reference it against demographic data to generate an offer which is delivered to the customer via SMS, e-mail or both.

Francesco Lagutaine, the regional head of customer franchise with Citi, explains that this technology could, for example, be used to target a particular group of customers who regularly shop with a specific retailer and send them an offer when they spend at merchants in the vicinity of an outlet. Similarly, customers buying tickets with their card for Hong Kong’s Star Ferry might instantly receive an offer which can be redeemed at a merchant located near the destination terminal.

“[It is] essentially marrying all the sophistication of analytics with actual real-time transactional behaviour and delivering an exclusive, customised offer based on that transaction,” says Mr Lagutaine.

Enthusiasm for these kinds of technologies is fairly universal but, for most, they remain in a reasonably early stage of development. “We haven’t announced some of what we’ve been doing yet but it’s very critical to our strategy and we definitely believe that the long-term distribution of these offers is through a combination of mobile apps and mobile websites,” says Cartera’s Mr Wolf. “You need to present the right offer to the right person, through the right channel at the right time. We do think that mobile has the potential to become the dominant channel in five to 10 years.”

Chicken and egg

Reaching this point of marketing nirvana, however, will not be easy. “I believe we will get there eventually, but it’s hard to transition,” says American Express’ Ms Lambert. “We have the new technology but we are also a little shackled by legacy systems, so moving all of those pieces together will inevitably take more time than the more excitable in the community think.”

She says success will rely on more than just technological development. “There is a chicken and egg story – to be able to provide what I think of as really great, personalised and customised offers, products and services, you need more and more data, and to get more data you need to be able to offer interesting, compelling and relevant services so customers are happy to continue to provide insights and data and share more of their lives."

Ensuring customers will do this relies on fostering confidence that their personal information and financial identity is in good hands, according to Ms Lambert. She says: “Customers need to get comfortable with the fact that as they share information, it will not be compromised. It’s our responsibility to make sure that our services protect privacy and protect consumer information as well as providing that personalised customised service.”

Getting consumers on side

Industry stakeholders stress the importance of an opt-out versus opt-in model to receiving personalised offers. Marketing should avoid what Mr Wolf describes as the “freak-out factor” caused by overly pushy, personalised campaigns, such as seeing an online advert for a product browsed for five minutes previously on a different website. “Our strategy is to not push the boundaries, to follow best practices and to do what’s right by our customers," he says.

As a result, Cartera does not actually learn anything about any specific individual or even share the anonymised and aggregated data it analyses with the merchant. Similarly, a key component of Cardlytics’ system is that no personally identifiable information ever actually leaves the bank’s firewall, says Mr Brooks. “If you look at the data we help banks process and analyse, we never ask for a name, we never ask for a date of birth, sex or any of those other types of things.”

As for mobile delivery of offers, Citi’s Mr Lagutaine says the bank’s real-time offers system features enhanced data protection and authentication procedures, including delivery only through a registered mobile number and/or email address.

Treading carefully

When it comes to customer data, customer apprehensions are not the only concern. Regulators have been keeping a close eye on the ways in which information amassed by financial services firms is used. In 2012, the US Federal Trade Commission pushed for legislation to meet what it described as “the invisibility of, and consumers’ lack of control over, data brokers’ collection and use of consumer information”.

Certainly those firms that fail to adhere to industry best practice could find themselves in trouble, says Nick Bouch, the director of Deloitte Analytics. “Pretty much every regulation – the existing ones and ones that are coming along in the next one to three years – has a component regarding use of data from a third party or giving your data to a third party. If you don’t put the controls in place now of how you use data you could be in breach of a number of regulations,” he says.

The situation in Europe is likely to be stricter than in the US, says Mr Brooks, particularly when it comes to the right to be forgotten – whereby records of customers which have opted out of a loyalty scheme must be purged.

The ‘everyone wins’ promise of targeted mobile marketing services may then be alluring for all concerned, and in some ways inevitable. But realising its potential will require a delicate balance of technological sophistication and sensitivity toward customer sentiment.

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