Banks Have the Potential to Make Billions off Your Shopping Data
by Sylvia Burleigh
Financial institutions and credit card issuers have found a way to make billions off their customers shopping data without letting them know about it, or charging a fee.
Basically, banks are acquiring information about their customer’s shopping habits – where and when they shop, how much they spend and what they buy – and making money doing it. According to Forbes, banks could possibly make $1.7 billion by 2015 by sharing your shopping data with merchants willing to offer discounts, deals and promotions for a price.
Retailers then take your shopping data and offer these discounts through the bank’s text messages, email and online bank statements. To be fair banks don’t just say “here, have at it”, instead a retailer describes the market they wish to target, and then the bank or card issuer analyzes consumer’s shopping data to decide who should receive the shopping “deal, coupon or rebate” based on the profile given by the retailer. If the customer takes action by cashing in, the bank makes a commission.
Currently, Wells Fargo, Citi and Discover have rolled out these incentive programs. Other card issuers are also poised to release similar incentive programs.
How it Works
For every purchase made by a customer, using the bank-provided discount, merchants pay the bank an average of 10 to 15 percent of the purchase price. Of that 10 to 15 percent fee, the bank takes 25 percent of it and then splits the remaining fee with an intermediary, like Cardlytics, an advertising group that specializes in transaction-driven marketing specifically for the financial industry.
Let’s say you buy a playset for your children for $1000, the retailer pays a fee of $150 to the bank and after the bank splits the fee with the third-party advertising partner, the banks walks away with $37.50.
While some argue the actual benefit to consumers; some see the cost factor of these discounts and promotions ultimately falling on consumers’ shoulders in the form of higher prices, while retailers, card issuers and advertising intermediaries line their wallets. Others dispute that consumers finally receive discounts and promotions that they’ll actually use since the target advertising is based on previous shopping behavior, unlike Livingsocial.com or Groupon.com.
While the debate continues, consumers should understand that the program is still in its infancy. For instance some card issuers apply a retroactive credit, meaning it requires the consumer to activate the discount online, while other card issuers have developed their own online portal for the specific reward program. It’s important for cardholders to read the specific s of the program before using it. For instance some banks or card issuers have you select the discount online, but you must still physically purchase the item in the store, and once the purchase is complete, only then does the bank retroactively credit your account the discounted amount. Cardholders need to rely upon their bank statements to see that the credit has been applied to their accounts.
It does sound convenient; however, you’re leaving the store with a purchase that may or may not have had the appropriate discount applied. When consumers leave the store, they have to make the assumption that they were charged the correct amount. If they don’t see it on their credit card statement, what would be the proper channels for customer support? Does the consumer go back to the merchant, the advertising intermediary or the bank? In the world of commerce, not every consumer reads the fine print.
What Privacy Issue?
According to the Privacy Rights Clearinghouse, bank regulations require that card issuers and banks give cardholders a choice to opt out of any incentive program. Banks insist that no personal identifying information is presented to merchants or the program creators nor do they access to customer’s online account credentials or see a cardholder’s shopping information.
These ecommerce advertisers like Cartera Commerce, Edo Interactive, Inc. and Clovr Media Inc. of Boston, market to both merchants and banks. So consumers can expect to see more advertising directed at them through their online statements and emails. Currently, 14 major card issuers, such as TD Bank, U.S. Bank, PNC Financial Services Group and Barclays, all have plans to move forward into card-linked advertising in the coming year.