Vesdia Corp. says it is fueling rapid revenue growth by creating loyalty programs for banks and other financial services companies.
The Atlanta microinvesting company, which had its beginning as Babymint Inc., providing rebates to participants in 529 college savings programs, has developed 20 programs for companies such as MBNA Corp. and Citigroup Inc., Thrivent Financial for Lutherans and William Blair & Co.
William L. Koleszar, the chief marketing officer, said Vesdia has become the top supplier of the "frequent flyer program" to the financial services industry.
It broadened its capability from that of a college savings rebate company in March 2003 when it changed its name to Vesdia. Mr. Koleszar said the company has increased revenue 200% each year of the past three and started more than a dozen private-label rebate programs. The privately traded company does not release revenue numbers, he said, but he predicted they would reach eight figures this year.
Vesdia expects this growth to continue, particularly through the banking channel. Mr. Koleszar said several bank agreements are in the pipeline. "I would say that if you look at the top 10 banks in the country, we are having meaningful dialogue with a lot of them and three or four of them have been pretty serious discussions," he said.
Peter Davis, who had been a Procter & Gamble executive, started Babymint in 2000. Mr. Koleszar said that Mr. Davis, who is Vesdia's CEO, realized that new parents, who had to spend money on diapers and formula, also needed to be saving for college. So he devised a program that rewarded people for purchases they would be making anyway by rebating part of the purchase price and putting it into a 529 college savings account.
Companies like Upromise Inc. followed with similar programs. When Babymint changed its name it began creating white-label rebate programs for banks and financial services companies. Banks could then develop loyalty programs that would reward credit card purchases of items from 700 companies and pay the rebates into the client companies' IRA programs, mutual funds, or money market accounts.
Vesdia earns revenue by taking a share of the merchant rebates.
"We learned that the idea of shopping and saving at the same time is bigger than just college savings," Mr. Koleszar said. "People are saving for retirement or to put a down payment on a house. There are a lot of goals people are working toward."
Analysts said loyalty programs like Vesdia's boost interest in investment products by tying them closely to credit card services.
"Everyone likes the idea of free money," said Burton Greenwald, a Philadelphia analyst. "These incentive programs help banks generate customers into their investment products and create contacts between advisers and clients."
Gavin Little-Gill, an analyst at TowerGroup, a Needham, Mass., research firm, has said incentive programs have helped companies compete for 529 plan customers for the past five years. In a report issued in 2002, he wrote that the average customer contacts a financial institution 1.2 times per year per account but that incentive programs raise the average significantly.
Mr. Koleszar said his business is all about increasing transaction volume.
"If you are a large fund-managing institution, you contact customers quarterly, and when markets are doing poorly, some people don't even want to open their statements," he said. "For a program like ours, the average customer uses their credit cards several times a week, 20 times a month, and 60 times a quarter. That is 60 times that you are reminded of your financial provider versus one time that you got an investment statement."
"It is all about entanglement," he added.
Vesdia is still in its infancy, Mr. Koleszar said.
"I have been around banking for a long time. ATMs were first developed in the 1970s," he said, "and today they only have a 60% penetration rate. This is a long adoption cycle. But when you look at the benefits of a loyalty program to a broker-dealer, or a fund management institution, it is going to continue to gain traction. … There is significant momentum behind the concept."
Mr. Koleszar said the only reason banks have been slow to adopt loyalty programs is that most have a legacy of silos.
"Let's face it, credit card folks aren't talking with investment folks, and investment folks aren't talking to the people on the platform," he said. "I think that that may be part of what is keeping the adoption from accelerating faster. We help integrate all of these folks together. As the concept gains acceptance, the silos will have to come down."
"These programs can truly integrate the portfolio of products that financial institutions offer," he added. "This is really the Holy Grail of investor loyalty. We're not there yet, but we're working on it."
