AUSTIN, Tex. — Loyalty vendor Buzz Points has armed itself with $19 million in fresh capital in hopes of capitalizing on the growing desire of credit unions and small banks to expand their debit rewards programs.
Buzz Points says it will use the infusion — from Discover Financial and other backers — to add more CUs and banks to its program that offers consumers points for swiping their debit cards. Eventually, those points can be traded in for gift cards to local merchants or used to make a donation to a favorite charity.
Buzz Points' planned expansion comes at a time when many CUs and small banks are looking to either add merchant-funded rewards to their product mix or expand existing rewards programs. Consumers have come to expect rewards for using debit cards, and many financial institutions fear that if they don't offer rewards they will lose customers to larger institutions that do.
"There is a growing expectation for debit card rewards," said Ronald Mazursky, director of debit advisory service at Mercator Advisory Group. "Bankers are trying to be smarter about their rewards program offerings."
Buzz Points' selling point to is that it typically partners with local, rather than national, merchants.
Whereas a large bank might offer points to be redeemed for gift cards at Banana Republic or Pottery Barn, a financial institution using Buzz Points' program might offer reward points that could be redeemed at a local dress shop, independent book store or coffee house.
The most tangible benefit to the CU or bank is that it receives interchange income with each swipe of a debit card. An ancillary benefit is that some of those shops either are or could become bank customers. Plus, bankers say that promoting local mom-and-pops is simply good business because it generates goodwill while helping local economies.
To be sure, there are challenges for merchant-funded reward programs, including whether the math (interchange income) works out for the bank, and keeping merchants — who may be less apt to continue to give repeated discounts to shoppers — distributing new offers on a regular basis. Indeed, consumers require new deals to keep their interest in the program, say industry observers.
"Without enough [merchant offers], it's like shopping at a mall where half the storefronts are shuttered — it just doesn't feel very exciting," said Ben Rogers, research director at Filene Research Institute.
Buzz Points, which recently added five sales people to its team of 70, plans to use its new funding to move into new markets.
Already, the company counts about 30 financial institution clients and operates in 13 states — including Texas, Florida and Illinois — and it is in the process of moving into Massachusetts, Michigan, Montana, Missouri and New York.
"We want to be coast to coast," said Jay Valanju, the chief executive at the five-year-old Buzz Points (formerly known as fisoc). "There is a lot of opportunity in the space right now."
Using Buzz Points' software, a bank can quickly enroll customers in its debit rewards program via email. Customers, once opted in, will receive points for swiping their enrolled cards and eventually can redeem them for gift cards to spend at local shops or use to donate to charities.
There's a social twist, too: consumers receive points for say, tweeting, about the reward.
Still, consumers have a plethora of options when it comes to rewards programs, and competition is getting increasingly fierce.
And a new industry group called CardLinX Association launched in August with the intention of helping merchant-funded rewards succeed. Members include the likes of Bank of America, MasterCard, Discover, and First Data.
Nonetheless, some programs do flop. PerkStreet Financial, which partnered with financial institutions to distribute cash back on debit purchases, closed shop in August because it ran out of money, while Ally Bank canceled its card-linked offers program last year because it felt it was of limited value to customers.
Hits and misses are to be expected, said Peter Olynick, lead for Carlisle & Gallagher Consulting Group. "You will see some ups and downs," he added. "It's a competitive space."
As part of its ramp up, Buzz Points, plans to better focus on mobile design and will have a "slew" of mobile-oriented products coming out for banks and merchants in coming quarters, according to Valanju. "It's all around mobile, mobile, mobile."
Indeed, the Federal Reserve recently published a study that found mobile phones are increasingly being used to help make shopping decisions.
Already, Buzz Points offers apps that show customers where they can redeem their points, among other things. Mobile, according to Valanju, is a great way to execute on his company's mission: amplifying consumer awareness about, say, Joe's Coffee when there's a Starbucks on every corner.
