July 14, 2011 |
As new merchant-oriented rewards programs like Groupon and LivingSocial have become increasingly popular with consumers, banks have also begun to introduce merchant-funded rewards that can offer consumers a more targeted rewards experience than these e-mail discount services are able to offer. The bank-focused services, detailed in Javelin’s recent report – Evolving Rewards Strategies: How Merchant‐Funded Programs Will Usher in a New Era of Loyalty for FIs – enable precise targeting through analysis of anonymized transaction data. As a consumer, this means I won’t be getting offers that are unlikely to interest me. If I shop regularly at a certain clothing store, for example, I am likely to receive discount offers that I can redeem at that store or at clothing stores with a similar quality of clothing and a similar price point. If I am a do-it-myself sort of person, I may receive offers from Lowes, Home Depot, or Sherwin Williams. If I spend lots of money on personal care, I may be offered discounts at a spa or salon in my area. All of this is great for me, because the offers focus around my particular interests; but how do the banks know what my interests are??
The beauty of the targeted merchant-funded rewards programs I’ve described is that neither the bank nor any other party knows MY particular interests. The transactional data that is used to assess my spending patterns is fully anonymous so that no personally identifiable information is available. Essentially, the bank has a big data file of its customers’ transactions. Typically, each customer is assigned a random ID number that cannot be directly linked to the customer by any third party or by anyone gaining access to the file. Then the data is reviewed and grouped by various attributes.
As an example, if a restaurant in my local area is offering a discount reward, the file can be screened for the ID number of people who live in that region. As another example, if a national shoe chain wants to offer a discount to females who have bought at a competitive shoe store in the last 6 months, the data can be scanned for the ID numbers of people who match that profile. No names, though. No bank account numbers, no credit card numbers, no phone numbers… only an ID number.
Once the file is matched with an offer, the offer is delivered to the bank customer using the ID number to match with the particular customer. The bank never sees specifically which customer gets what offer because that personal information is always protected. The merchant does not see that information either. And programs like this generally offer an opt-out option if the customer does not want to receive offers or is uncomfortable in any way with the program. Banks can and should help to further customer comfort by educating consumers about how their data is protected and by offering customers an effective liability protection program. For more ideas, see Javelin’s report.