a new initiative that will bring deals and discounts to consumers through the banks themselves. Banks have begun selling consumers' personalized information to merchants who in turn offer deals based on spending habits or other criteria.The banking industry has launched
Daily deals sites like Groupon or LivingSocial do not have massive amounts of data about their users. (Groupon is trying to remedy that.) The daily deals system is merchant-centric: Merchants bid on deals and the services chooses what deals to run for a particular period of time. But that doesn't give those services the kind of in-depth data about their users that would enable them to target deals to individual consumers.
Banks Cashing In On Data
If a person's primary method of payment is some type of credit or debit card, the banks know everywhere that person goes, what they spend their money on, what their preferences are, what locations they frequent and so on.
Selling that data is an interesting method of making money for banks. Federal regulations are strict on what customer data banks can share and with what entities. According to the Tribune story, the bank's system is set up in such a way that the deals are coming from the bank, not from the merchant. Data is processed between the merchants and the banks through intermediaries, such as Cartera or Cardlytics. Personally identifiable information is randomized and customers are given numeric codes, of which only the bank will know who the user truly is.
According to the Tribune, 58% of customers have redeemed at least one deal. The incentive programs are opt-out, which 2% of customers have chosen to do. Merchant funded incentive programs could be a $1.7 billion vertical for the banking industry by 2015, even with the banks only taking 25% of the fee for the incentive.
Privacy, Data, Money = Advantage Banks
When it comes to the Internet, money is inextricably tied to user data. The companies with the most data about their users tend to make the most money. Banks are the perfect avenue for incentivized deals because they can offer merchants exactly what they are looking for.
For instance, a 29-year-old male with an income above $40,000 that purchases shoes three times a year would be a perfect target for a deal from Designer Shoe Warehouse or Footlocker. Groupon cannot give merchants that level of granular information.
What will this mean for the fledgling daily deals industry going forward? Groupon had a litany of risk factors in its filing for its initial public offering and "inability to stave off competition and clones" was one of them. Facebook and Google are secondary players in this market. Both have created various types of deals and "offer" campaigns, and they both pose a problem to the primary players since they already have significant amounts of user data.
Yet, the banks have more information about customers than any Internet company ever could. If the financial industry starts muscling into deals, do the likes of Groupon and LivingSocial stand a chance?