First Data Corp. is pushing further into outsourced loyalty programs by offering card issuers a way to increase use of their cards through bonus rewards tied to the purchase of specific products or at specific stores.
The nation's largest payment processor said the Item Level Processing program is available now to issuers and merchants, whether or not they use First Data to process the transactions.
In April, First Data announced Customer Linked Rewards, which allows the entire transaction history of a financial company's customer, not just credit or debit card transactions, to count toward rewards points.
Sara Bonn, the chief product and innovation officer in First Data's financial institution services unit, said Item Level Processing could help issuers get merchants or manufacturers to participate in bank loyalty programs and help cover their expenses.
"Lowering your cost when you're trying to create relevant rewards can be very challenging," Ms. Bonn said in an interview Tuesday.
She cited an example of a consumer going to a hardware store to buy a hammer, nails, a DeWalt drill, screws and other supplies. Through an arrangement with the manufacturer, a card issuer might be able to give the customer 10 rewards points on the dollar for the drill but only one point per dollar on the other purchases.
First Data said the rewards can be brand-specific, department-specific, time-sensitive, or store-specific.
Ms. Bonn said issuers could use such "relevant rewards" to influence cardholders' activation and use of the card, as well as for customer retention.
"It addresses all pieces of loyalty," she said. "If this can motivate consumers to pull out that card more than they ordinarily would, that's a benefit."
Julie Bohn, First Data's director of product development for loyalty solutions, said the Denver company is working with a couple of issuers on implementation and plans to make customer announcements later in the year.
She said the closest comparison today is closed-loop programs outside the financial industry, such as grocery chain programs that offer discounts to customers who present loyalty cards, or cobranding deals with gasoline station operators offering discounts on fuel.
Unlike corporate purchasing cards that use so-called Level 3 transaction detail to let office managers track spending, or the cards used in health savings accounts that can segregate insurance-eligible items during checkout at a pharmacy, this program uses bar-code data from merchant inventory systems to identify qualifying items by their stock-keeping unit codes.
"We work with the merchant to collect the SKU data apart from the financial transaction," Ms. Bohn said, "which we think is manageable for the merchant."
Dan Schatt, a senior analyst in the retail banking group at Celent LLC, a research and consulting firm in Boston, said banks and merchants alike could benefit from such a program.
"Rewards on SKU-level items, tied in with payment capabilities, is really going to address some of the tensions that merchants and issuers historically have had," he said.
These capabilities will evolve as consumers increasingly use mobile devices such as cell phones to perform transactions, Mr. Schatt said. Customers of a grocery store, for instance, could respond to text messages offering a discount on rotisserie chicken purchased between 6 p.m. and 8 p.m.
"When you're able to pull out your phone and tap it on a reader and have all the rewards activated, and the payment executed through your method of choice, by default, that's going to be a very powerful thing," Mr. Schatt said.
