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Innovations in online banking and mobile banking technology are creating a host of opportunities for banks to successfully deepen relationships with their customers — most notably through the adoption of transaction-driven marketing programs.
The initial appeal of transaction-driven marketing, originally referred to as merchant-funded rewards, was that it presented a viable way for banks to offset revenue losses tied to diminishing fee incomes. While this still holds true, with Madeline Aufseeser, Aite Group senior analyst, predicting in a report this year that “…card issuers’ annual revenue from merchant-funded incentive programs will more than quadruple over the next four years, amounting to $1.7 billion by 2015,” the hundreds of banks that currently have transaction-driven marketing programs in place are realizing that the primary benefits of such programs reside in the increased engagement and retention of customers.
Through transaction-driven marketing, banks are able to partner with leading national and local retailers and securely present offers directly to customers through existing online and mobile banking platforms. Because the offers are based on customers’ actual transaction histories, they are only presented with offers that make sense for them. In doing so, banks are reasserting themselves as true financial partners to customers by providing highly relevant offers that can positively impact their individual financial situations in meaningful ways.
At its core, transaction-driven marketing embraces the idea that the relationship between a consumer and his or her financial institution is one of tremendous value, built on trust. As consumer preference for bank interaction through online and mobile channels grows, financial institutions are challenged to extend the traditional brick-and-mortar branch level of service to their most-valued customers through these digital mediums. In this regard, transaction-driven marketing offers perhaps the most effective means of achieving this today.
Customer activation and redemption rates for transaction-driven marketing offers support this assertion, with average activation rates currently between 15 and 20 percent, and activation rates for individual campaigns reaching as high as 50 percent. This is more than 100 times the activation rate of traditional digital channels like banner ads, email marketing and social media daily deals.
A bank customer who actively participates in his or her bank’s transaction-driven marketing program typically receives discounts of 15–20 percent when shopping at new retailers and generates — on average — between $100 and $200 per year in cash back rewards. These are real dollar savings that financial institutions help their customers accrue and tangible benefits of being a customer of the bank.
The high customer engagement levels among transaction-driven marketing campaigns also underscore another advantage for financial institutions in that those customers tend to interact with the bank’s website more frequently, presenting additional opportunities for engagement and relationship building.
What About Customer Privacy?
As it should be, financial institutions want to ensure the security and privacy of their customers’ information before engaging with any marketing partner. While transaction-driven marketing is unique in that it enables offers to be highly targeted to individual customers, it is important to note that offers are based only on anonymous transaction information. No personally identifiable information is ever used to generate offers.
Furthermore, leading transaction-driven marketing platforms use multiple layers of bank-level security and data encryption that meet or exceed the requirements of all federal and state security laws and regulations. In fact, the best solutions typically operate within the bank’s firewall, so no transaction-level detail ever leaves the institution. This allows the bank to provide a rich picture of the consumer’s transactions, including debit, credit, ACH and billpay. It also results in truly targeted and extremely relevant offers for the consumer and, incredibly rich targeting for the merchants — all done strictly within the confines of the bank’s data center and under the control of bank personnel. All terms and conditions are fully disclosed to customers, who always have the option to simply opt-out of the program at any time.
A Case in Point
On aggregate, across a broad base of banks with differing levels of marketing investment used to drive engagement, the average bank achieves broad engagement from customers extremely quickly. Customers who redeem an offer have between a 4 percent and 7 percent increase in the number of transactions per month and a 5 percent increase in monthly spend compared to customers who do not use the program. This increase in transactions and spend is sustained over time. Setting aside the direct revenue share from the merchants, these results drive an increase in interchange revenue of as much as $5 per engaged customer per year.
Lastly, those customers who click an offer show a sustained 15 percent increase in log-ins after their first engagement with the solution.
Today, through the solution at Cardlytics, more than 75 million U.S. households (representing more than 200 million consumers) have access to transaction-driven marketing offers through their financial institutions’ online banking platforms, including more than 14 million mobile-banking users. To date, more than $500 billion in consumer spend or 1.4 billion transactions (equal to approximately 25 percent of U.S. non-durable good purchases) is available for targeting with these offers — and those numbers are growing with additional banks added on a weekly basis.
Consumers are actively searching for ways to save money in their everyday lives and with transaction-driven marketing, banks can play a significant role in helping them achieve their goals.
Rod Witmond is senior vice president, marketing and consumer experience, for Atlanta-based Cardlytics. For more information go to www.cardlytics.com.
Copyright (c) December 2012 by BankNews Media