Busey Bank in Champaign, Ill., has offered a debit rewards program since 2005 to build incremental revenue from cardholders through interchange and add-on services like bill-pay.
The program generates about $62 in annual revenue per account, but Busey executives said they believe the bank can do better by strengthening relationships with area merchants.
So the $4 billion-asset Busey is offering local gas stations, bookstores and coffee shops a new rewards program that analyzes a consumer's debit card spending habits and offers customized promotions to the customers most likely to respond. The My Rewards program was developed by Image Products Inc. in Austin, and Busey earns earn fees from participating merchants when cardholders redeem the offers.
"In addition to going to merchants and saying, 'We can carefully target customers for you,' it builds in a return for the bank that is significantly more than interchange," said Bob Giltner, an Image Products consulting partner. "The [numbers] the bank has on purchases are the keys to the kingdom … nobody else has that data."
The My Rewards program is similar to other data-driven rewards programs getting underway.
Cardlytics Inc., an Atlanta start-up, is planning pilot programs with three banks that are to feature targeted merchant offers sent to customers during online banking sessions. Cardlytics chief executive Scott Grimes would not name the banks but said his company is already generating buzz, in part because he and Cardlytics president Lynn Laube both came from Capital One Financial Corp., where they were instrumental in the 2007 rollout of the issuer's industry-rattling decoupled debit product.
"Banks … don't have a lot of interchange to go and reward consumers," said Grimes. "We've brought in a new source of economics for the loyalty relationship, and that's merchants who value reaching customers through the banking portal."
Jack Henry & Associates Inc. is planning to roll out this quarter its Big Rewards program, developed by Saylent Technologies Inc., which lets Jack Henry's financial company clients micro-target pockets of customers with incentives based on their transaction histories, offering rewards that can be redeemed at merchants or internal incentives to promote a bank's products and services.
Mining debit transactions gives merchants the opportunity to "dice and sort" customer data in important new ways — especially through competitive research, said Elizabeth Rowe, a principal analyst at Mercator Advisory Group. For example, Burger King Corp. could build a database of McDonald's Corp. patrons through transaction data compiled by the bank and then try to poach them with a special offer, she said.
In a pilot program last year, Busey and the convenience store chain Super Pantry offered a $10 gift card to about 6,000 cardholders who frequented other stores.
Grimes said Cardlytics' system will be able to offer up to $200 a year in account rewards to customers, compared to the average debit card program return of $15 to $30 a year.
Data-driven rewards can be more than a new profit center. Financial companies have struggled to improve lagging consumer interest in debit rewards programs. About 27% of debit card holders in a First Data Corp. survey in December participated in rewards programs, and a large share — up to 40% — said they have grown unhappy with offers that lack quality, variety or usefulness. (First Data is a unit of the private-equity company Kohlberg Kravis Roberts & Co.
Though consumers are not clamoring for debit rewards, more banks are moving toward offering them. The 2008 Pulse Network debit issuer survey, released this month, said 51% of banks had debit rewards programs, up from 37% two years earlier. Another 23% were considering adding such a program. (Pulse is a unit of Discover Financial Services.)
Getting more debit card use out of customers is becoming a crucial link to performance as lending opportunities — including credit card lending — shrink, said Aite Group analyst Ron Shevlin. any kind of potential growth opportunity at the moment."
At Busey Bank, chief retail officer Susan Abbott said the goal is for the merchant component eventually to supply about half the income generated by its debit rewards programs.