WITH THE GROWING CONSUMER ACCEPTANCE of online banking, financial institutions now have an opportunity to introduce "transactional" marketing that offers online rewards and help convert online banking into a profit center, says Scott Grimes, CEO of Cardlytics, Atlanta.
Transactional marketing is a new type of loyalty incentive program that rewards debit, credit or prepaid card spending with offers that are based on an individual customers' actual spending and presented in a customer's online banking account, Grimes explains.
Over the past decade, the amount of stored customer transaction data has increased as many consumers have shifted the majority of their day-to-day purchases to debit instead of cash or credit.
"Transaction-based rewards are significantly more valuable than traditional card based rewards because consumer response to the highly relevant offers is so strong," Grimes says. Traditional online marketing targets based on information like demographics, which is meant to predict a customer interest. "Transaction-based marketing is not a guess," says Grimes. Offers are presented based on a customers1 actual spending: including the location, date, amount and merchant associated with every purchase. Transaction-based offers bring the relevancy needed to appropriately market in the banking channel.
Financial institutions have appropriately avoided loyalty programs that rely on others to protect the security and privacy of account information. The capability now exists to enable banks to act as matchmakers, pairing relevant merchant offers with appropriate customers. This occurs without customer data ever leaving the institution. Offers are securely paired with appropriate customers and presented alongside transaction records they review when they visit their online bank account.
To redeem rewards, customers activate the offers by simply "clicking" them within their online banking pages, thereby "attaching" those offers to their cards. The offers are automatically redeemed when the customers use their cards to purchase according to the offer's conditions. Such functionality does not burden customers with having to print coupons or enter promotion codes. The incentive provided by the merchant is not given at the point of sale. Instead, it is provided to the customer through the bank's rewards program.
An example of financial institution that is using transactional marketing is First Federal Savings & Loan Assn (assets: $3.4 billion), Charlestown, S.C. According to Bruce Copeland, senior vice president of marketing, customer redemption of offers has increased 30 to 50 percent each month since the bank began using its transactional marketing program in November 2009.
Perhaps the greatest appeal of transactional marketing to banks is that it does not present the cost-burden normally associated with other rewards systems, Grimes says.
If debit cards have thin margins (that are primarily based on interchange fees) and customer rewards must be funded in the online bank, how exactly do banks manage to realize a profit?
Grimes says: "Profits come naturally to banks that leverage transactional marketing because retailers are willing to fully fund transaction-based customer offers themselves." To the retailers, he says, these costs are well-worth the significant marketing potential provided by transaction data: The service is extremely advantageous to marketers primarily because of the superior targeting and visibility it provides without the wasted expense typically associated with traditional marketing tactics.
"Transactional marketing enables banks to realize the full potential of online banking as it increases customer loyalty and generates additional revenue," Grimes says. "All parties involved are able to derive benefit as banks are able to provide relevant rewards to their customers and generate profits through their online banking channels; customers save money on everyday purchases; and businesses are able to leverage data that helps them better reach customers and prospects."
Cardlytics offers transactional marketing rewards programs for financial institutions, www.cardlytics.com
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