Cardlytics Inc. is expanding its online banking marketing system to reach smaller merchants and larger banks.

The Atlanta company's technology delivers targeted advertisements and offers to consumers through online banking sites. Customer can redeem those offers for reward points or cash back within their banks' rewards programs, though the reward is funded by the merchants that made the offer.

The system was launched in August and is in use now with four banks. Cardlytics said Monday that it plans to go live with five of the top 20 U.S. banks by the end of the first quarter (it would not name any of them).

The key to the system is its ability to identify when specific merchants appear in consumers' spending data. This is necessary to trigger the rewards — such as when a merchant wants to market only to people who spend a certain amount of money in a particular category — and to detect when rewards have been earned.

Lynne Laube, a co-founder of Cardlytics and its president, said this task is not particularly straightforward.

"If you look at how information comes across a point of sale system, it's very dirty," and it would be easy to even mistake separate stores in a chain as separate merchants altogether, Laube said. However, "we have now gotten to the point where we have cleaned, so to speak, even the smallest regional and local brands out there," she said.

Since the merchants that use the Cardlytics system can base their targeting on how much consumers spend at a competitor, it was important to properly identify not only Cardlytics' clients but also merchants that have no direct ties to the clients, Laube said.

She said the Cardlytics technology is well suited to work at the local level, since smaller retailers know their competition and also know their local banks.

Cardlytics has begun approaching smaller merchants and has tested the technology with about 18 of them.

The Cardlytics marketing system is already in use with another 60 merchants that do business nationally.

Merchants can also target their offers by geography, so a nationwide retailer could make an offer to people within a specific market, she said.

Nicole Sturgill, the research director for delivery channels at the research firm TowerGroup Inc. in Needham, Mass., said Cardlytics' new local touch should make this system more appealing to larger banks.

"The benefit here is being able to give the bank the option to add more merchants," Sturgill said. "The more they can offer, the better, and I do like the local piece to that."

Consumers should respond well to seeing their local merchants listed as options for this system, she said. With most rewards programs, spending is tied to a national brand — there simply is no option to earn points or redeem points by spending with local merchants. Rewards-conscious consumers may be swayed to shop at larger stores for this reason alone, Sturgill said.

To take the focus off national merchants and "to be able to bring that down a level would be fantastic," she said. It would give consumers "more access to things that aren't just car rentals and airlines an the major shopping outlets."

Cardlytics' promise of having the system live with larger banks next year should give the system a boost if the banks are willing to be named, Sturgill said. It would demonstrate the technology's scalability to prospective customers, she said.