Busey Bank of Champaign, Ill., has given out debit rewards since 2005 to increase 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 officials believe the bank can do better by strengthening its relationships with area merchants. So the $4 billion-asset Busey is reaching out to local gas stations, bookstores and coffee shops to participate in new rewards offers that will be based on a consumer's debit-card spending habits. The transaction information marketed to retailers help construct promotions and offers to customers most likely to shop with them. Busey — through debit rewards program vendor MyRewards — will earn added fees from merchants as 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," says Bob Giltner, a consulting partner for Wilmington, N.C.-based MyRewards. "The [numbers] the bank has on purchases are the keys to the kingdom...nobody else has that data."
The new program at Busey is similar to other data-driven rewards programs getting underway. An Atlanta-based startup, Cardlytics, is planning pilot programs with three banks that will have targeted merchant offers sent to customers through online banking sessions. Cardlytics CEO Scott Grimes would not name the banks, but his firm is gaining attention because Grimes and president Lynn Laube are each former Capital One executives who 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," says 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."
A second-quarter 2009 rollout was planned by Jack Henry & Associates and partner Saylent Technologies for a "Big Rewards" program that Jack Henry clients can use to micro-target pockets of customers with incentives based on their transaction history - for both external rewards offerings or for internal incentives to promote bank products or services.
By being able to mine debit transactions, merchants have the market opportunities to "dice and sort" bank customer data in important new ways - especially through competitive research, says Elizabeth Rowe, a principal analyst with Mercator Advisory Group. For example, Burger King could build a database of McDonald's patrons through the transactions compiled by the bank and poach them with a special offer."
In a pilot program last year, Busey and convenience-store chain Super Pantry offered a $10 gift-card incentive to about 6,000 cardholders who frequented other stores to come swipe $100 in Super Pantry purchases.
Grimes says Cardlytics' system will be able to offer up to $200 a year in account rewards value to customers, versus the average debit-card program return of $15 to $30 a year. Data-driven rewards can serve as more than a new profit center. Institutions have struggled with improving lagging consumer interest in debit rewards programs. Only 27 percent of debit cardholders in a First Data survey in December participated in rewards programs, and large percentage — up to 40 percent — have grown unhappy with offers that lack quality, variety or usefulness.
While consumers aren't clamoring for debit rewards, more banks are moving toward offering them. The 2008 Pulse Network Debit issuer survey found 51 percent of banks had a debit rewards program, up from 37 percent two years earlier. Another 23 percent were considering adding the programs.
Getting more debit-card use out of customers is becoming a crucial link to performance as lending opportunities — and that includes credit card lending — shrink. "It's probably the last refuge for any kind of potential growth opportunity at the moment," says Aite Group analyst Ron Shevlin.
At Busey Bank, chief retail officer Susan Abbott says the bank's goal is for merchant component to eventually provide about half the total income generated by its debit rewards programs.