Why retail banks can outperform sites like Groupon

Great post.  Banks have been ignoring this opportunity for too long.  Bank of America have launched AmeriDeals but beyond that there isn't much else.  It isn't difficult either...

Great idea.  So why aren't more banks doing this, what are the risks?

Offermatic and Cardlytics are two companies that already offer technology that enable "highly personalized offers". Offermatic is targeted at consumers and Cardlytics, at banks. Both use credit card transaction history as the primary source of spend information for creating highly-personalized offers. According to reports, the offer service recently launched by BofA uses Cardlytics. We don't have any interest in either Offermatic or Cardlytics.

However, we do have an interest in another company that offers similar technology. To comply with Finextra Community Guidelines, we won't name names nor say much more about this technology except to share our experience of pitching it to banks. We're doing this solely in response to Christoper Mc Carthy's aforementioned question,, "...why aren't more banks doing this...?".

Most banks see huge benefits with "highly personalized offers". However, a common objection we hear from them is, "We've just invested in creating a separate offers Portal / Facebook page / Twitter account. We'd like to gauge the market response before we can consider any further investments in this space." Banks readily appreciate that the type of offers we're talking about here can deliver much higher conversions than their traditional "spray and pray" style of offers. However, their "wait and watch" approach is not unjustified.

GroupOn has recently announced "Personalized Offers". Banks lack line-item spend data (e.g. My credit card  issuer knows that I spent $58 at Target last month, but it doesn't know it comprised of $10 for milk, $12 for pizza and $36 for a shirt), which severely blunts their purported ability to craft highly personalized offers. A quick glance at the sample offers displayed on Cardlytics' website will reinforce this point. At most, they can do it using spend information only from single category merchants (e.g. $58 spent at FootLocker means $58 spent on the single product category of 'shoes and sportswear'). Therefore, I'm not so sure that even the most agile among banks can outperform GroupOn and other startups in offers. 

To Michael,

Thanks for pointing out the example of Bank of America and their pilot "Bank Amerideals". 

Here is the link to the article as a complement to this blog: http://www.creditcards.org/article/new-discount-deals-be-based-spending-habits-.html 

Pierre

@Ketharaman Swaminathan
Thanks for your reply, very informative and interesting as always!

@ Ketharaman Swaminathan

Thanks for giving me an opportunity to expand on the blog.

The investment by Banks in Social media does not contradict the development by banks of daily deals.

Social Media is another channel where daily deals could be proposed by a bank to their youngest cardholders, in complement to the Bank’s daily deal web site for their less younger cardholders.

American Express has launched its “Link, Like, Love” and “Go Social” Initiatives on Facebook to help American Express cardholders to benefit from offers they clip on the social media. The offers that are redeemed at the merchant later appear on the Cardholders’ monthly statements.

Retail Banks can outperform daily deals sites like Groupon even if they do not have complete access to the type of items that their cardholders buy.

There is already value in knowing that a cardholder spent on his credit card a total of 1000$ in airlines tickets at three different low cost companies over the last 6 months.

The information collected is good enough for a bank to propose offers targeted to a  category of merchants which are already specialized, so the deals can be linked to specific categories of products, and big retailers like Target would not be the target here. Once the cardholder is in store, there are other technologies and mechanisms to hook the customer for more frequent visits and higher spend.

Retail Banks have the legitimacy to develop daily deal site with “personalized offers”.

Retail Banks are much better positioned to collect preferences from their customers than Groupon. They can simply collect broad preferences -food, travel, entertainment, etc…- or even register more refined sub-categories -food-> fine dining, exotic, home delivery… Customers of the Bank can change their preferences in time as their needs change while the Retail Bank would continue to securely store those preferences.

Retail Banks lack the agility of telecom operators or companies like Google and Paypal.

In this competitive battle, technology is surely one of the key success factors, along with the will to jump into the thrills of the promotional world. For the on-going animation of the daily deals platform and the recruitment of merchants, early adopters may do the job themselves. Several marketing operators per country can also do the job on behalf of a Retail Bank although this may lead to the weakening of the relationship between the bank and the cardholders. As for the technology, Retail Banks have now several solutions providers, a few you named, others you did not name, including the ones you have some interest in as well as the one mentioned in my profile. So Retail Banks can acquire the agility they need in this battle by partnering with Solutions Providers and Marketing Operators.