Interchange Fee Limits Give Way to Transaction Marketing
The landscape of traditional bank rewards programs is changing due to new Federal regulations, such as the Durbin amendment, which places limits on the interchange fees retailers have to pay to accept card payments. While reduced interchange fees represent savings for retailers, banks are concerned about the negative impact on their rewards programs that rely on interchange fees for funding. Prior to the economic downturn and subsequent legislation, reports from the Food Marketing Institute indicated that approximately half of the interchange fees collected by card providers were used to fund rewards programs.
In response to these changes, many banks and retailers are turning to a new type of reward program that doesn't rely on interchange fees and offers numerous benefits over traditional rewards programs: Cardlytics’ transaction marketing. Increasing numbers of local, regional and national retailers are leveraging transaction marketing for the following three benefits:
- precise targeting capabilities;
- presentation of highly relevant offers to consumers in their bank statements (places that, until recently, have been off-limits to retailers); and,
- the precise performance tracking of campaigns.
Unlike traditional rewards programs, transaction marketing enables retailers to build campaigns that target specific customer purchasing characteristics. Such purchasing characteristics may include ZIP code, store name, store category, purchase frequency or amount of expenditure. Partnering financial institutions route retailers’ offers to the bank accounts of consumers who meet the required purchasing characteristics. All of this is completed within the safe confines of a bank without personal information ever leaving the institution.
Offers are presented to consumers as “rewards” each time they visit their bank accounts, and are displayed directly beneath relevant transactions. Consumers simply click the reward to view and activate it to their prepaid debit or credit card. The reward is automatically redeemed the next time the card is used to make a purchase that meets the offer’s conditions. Because transaction marketing measures both online and in-store results, and the data is available within days of a purchase, retailers can easily adjust the placement of incentives to maximize results — a level of efficiency not available with any other marketing vehicle.
More broadly, transaction marketing through banks enables precise measurement of what offers were activated, as well as the specific number of resulting redemptions. A 100 percent accurate and attributable return on investment.
In terms of response rates, transaction marketing offers typically experience activation rates that average 15 percent to 20 percent, with some campaigns experiencing as high as 40 percent. On average, a third of consumers who activate an offer actually follow through and make a purchase. These results are significantly higher than other channels due to the advanced targeting capability of transaction marketing and the presentation of offers in consumers’ bank accounts — a trusted channel they often visit to manage their money and determine future purchases. Retailers only pay when a consumer actually makes a purchase. There are no up-front costs and, therefore, no risks.
Although traditional bank rewards programs will certainly be impacted as a result of interchange limits imposed by recent legislation, new, innovative, alternative solutions such as Cardlytics’ transaction marketing will enable retailers to better reach the right customers with highly visible, highly relevant rewards.
Scott Grimes is CEO of Cardlytics, a company that unites banks and merchants to provide rich rewards to consumers based on their individual purchase behavior.