First Data Corp. is making a bid to become a key source of information on consumer shopping behavior - with banks involved as partners in the venture.
Tapping the vast store of data from its credit card processing activities, First Data plans to offer retailers insights into consumer choices, while participating cardholders are rewarded with discounts.
The program, USA Value Exchange or Usave, has been in a pilot mode since last May and will go national this quarter, First Data announced this week at the National Retail Federation convention in New York.
First Data described the venture as a limited partnership with its card- issuing and merchant-acquiring banks. The banks remain in control of customer relationships, and the Hackensack, N.J., processing specialist manages the information.
Although the focus is on retail shopping habits, the strategy is similar to the data warehousing and data mining efforts of financial institutions to understand customers and their profitability - even predicting their needs or desires.
Industry observers characterized Usave as a powerful offering unifying the card-issuing and merchant-processing sides of First Data's business. (The company is the biggest in both ends of the bank card servicing industry.)
The venture's high degree of "customer intimacy" may raise privacy concerns. First Data said it adheres to a strict privacy code and lets cardholders opt out of the program. It hopes the payoff - discounts delivered with card statements - will keep cardholders in.
"People are tired of junk mail and mass marketing," said Patricia Hudson, president of Porges/Hudson Marketing Inc., San Francisco. "First Data is in a position to recognize specific cardholder transactions and therefore tailor these kinds of offers to" cardholders uniquely.
Mary K. Dobbs, president of USA Value Exchange Corp., the Houston-based venture managed by First Data Solutions of Palo Alto, Calif., said Usave would be "the next step beyond cobranding."
"It benefits consumers and the merchant and the banks on both sides of the equation," she said. "We can target every aspect of the consumer's behavior."
Ms. Dobbs said cardholder response rates have been greater than those to direct-mail offers. She said more than 50% of cardholders in the program said they would prefer to use credit cards to get discounts rather than make payments with cash or checks.
To be eligible for Usave, merchants must have a card processing relationship with First Data. They can use Usave to target potential customers as well as those who have already bought from the stores.
A bank must put at least 75% of its card portfolio into the program. But it can brand the program in any way, without necessarily calling it Usave.
Forty-eight financial institutions, 60 million cardholders, and 600,000 merchant locations currently participate. The program has accumulated 15 months of consumer spending data.
"The early read from merchants is that they are highly receptive and excited," said David Kerstein, executive vice president of Old Kent Financial Corp., Grand Rapids, Mich., a banking company represented on the USA Value Exchange board.
Others represented include Advanta Corp., Banc One Payment Services, Barnett Banks Inc., First USA Bank, Fleet Services Corp., Bank of New York Co., and Wells Fargo National Bank.
"In general, we are always interested in programs that will differentiate us by giving value to cardholders," said Phyllis Hoffman, an Advanta spokeswoman. "The concept is a great one. We don't know how effective it is yet. It is still a pilot. We are evaluating the data that are coming in."
Advanta also is interested, she said, because on its own it lacks the "critical mass" to attract major merchants to such a program. It gains access by being part of a consortium with 60 million cardholders.
"We're getting closer and closer to the concept of segment-of-one marketing," said Ms. Hudson, the San Francisco marketing consultant. She added that consumers are more likely to respond to offers created specifically for them.
"This is part of an evolution over the last eight years," said David Robertson, president of The Nilson Report, an Oxnard, Calif., newsletter. It is a way for First Data "to secure the long-term viability of processing contracts" by "supplying extra servicing and detail to existing customers," he said.
"We fully expect MasterCard and Visa to evolve programs before the first half of the year," he added, and they "will move beyond coupon-based marketing."
MasterCard has a pilot called Electronic MasterValues that offers discounts at the point of sale. Visa said a number of comparable programs have emerged from its information storehouse.
Mr. Robertson pointed out that American Express Co., like First Data but on a smaller scale, has a "closed loop" of merchants and cardholders. It can use data bases to customize benefit and discount offers in cardholder statements.
First Data processes transactions for 61% of U.S. merchants and 30% of card issuers; American Express has fewer national merchants and is more selectively geared toward high-end consumers, said Paul Martaus, president of Martaus and Associates, Clearwater, Fla.
Ms. Dobbs, the Usave president, said 40% to 60% of her participating merchants are national.
"Within the next five years, they expect revenues from Usave to exceed all revenues from other programs," Mr. Martaus said of First Data. "Eventually they want to provide manufacturers with information that spots trends."
On the privacy issue, Mr. Martaus said that the type of information USA Value Exchange compiles now is "relatively benign" because First Data does not know the specific items consumers are buying.
"If it gets to the point where they know what I bought, I would want to know how they got this information," he said.
"I doubt that credit card holders have been adequately advised about what's going on," said privacy watchdog Evan Hendricks, editor and publisher of Privacy Times, Washington. "If something goes wrong with the information, if there is a bad apple at First Data, there is no legal remedy."
He described First Data as "very aggressive in compiling this kind of information. They will emerge in the next century as a centralized warehouse for financial information and will surpass some of the credit bureaus."