Finance & economics | Banks and big data

Shopping at the bank

It is harder to make money from banking. How about marketing?

Your bank is watching

FOR more than a decade bankers have fretted about the threat posed to them by the banking arms of supermarkets. The likes of Walmart and Tesco have thousands of outlets that customers visit millions of times a week. Their networks dwarf those of ordinary banks; small wonder the bankers were scared.

Yet now the boot is on the other foot. Banks and other financial institutions are learning to crunch the data they hold on their customers. Instead of being supplanted by supermarkets, banks may sway shoppers.

A leader in this field is Cardlytics, a private American company founded in 2008. It has developed technology to analyse transaction data held by banks and to use this information to sell targeted advertisements to retailers and others. A supermarket might, for example, be interested in customers who spend $100 or more a month at rival grocers but who have not entered its own stores for six months. It might then offer these people a 20% discount on their next shopping trip at its stores.

Cardlytics would insert an advertisement to this effect into these customers’ online-bank statements, ideally under a relevant transaction such as a payment to a rival retailer. Customers can accept the discount online by clicking a box. This connects the discount coupon to their debit card, so that the discount is automatically rebated to their account when they meet the conditions (by, for instance, shopping at the store within a certain period of time).

The potential revenues are alluring to banks, which are struggling to maintain profitability in the face of low interest rates (which depress their margins) and consumer legislation that has outlawed or reduced many of the fees they are able to charge. Cardlytics, which recently struck an agreement with Bank of America and is now working with 327 banks that reach 78m households in America, says it is able to charge retailers an average advertising fee worth some 10% of the price of the purchase made by the customer, which is then split with the bank. It also claims mouthwatering rates of “click through”. Some 15-20% of customers accept offers, of which about one third are actually redeemed. By contrast click-through rates in most other online-advertising media are less than 2%, and in some cases as low as 0.2%.

Other firms are also trying their hand in this area. Card networks such as MasterCard and Visa have begun mining their data to provide targeted advertisements. So have some banks. Citigroup, for instance, monitors the credit-card transactions of its customers in some Asian countries and uses the information to send text messages offering special deals. A customer buying clothes at around lunchtime, for example, might be offered a discounted meal at a nearby restaurant.

Although these initiatives offer financial institutions a way of exploiting the vast troves of data they hold, they also raise the risk of a consumer backlash over privacy. In most cases firms offer customers the opportunity to opt out of such offers. They also promise anonymity: Cardlytics says the banks it works with never reveal the individual identities of any of their customers. Even so, customers may yet balk when pesky ads invade the sanctuary of the bank account.

This article appeared in the Finance & economics section of the print edition under the headline "Shopping at the bank"

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