Cardlytics Inc., which provides a merchant-funded rewards program to banks and prepaid card companies, is on the verge of expanding outside the U.S. after receiving funding from a company that owns loyalty programs in Canada and the United Kingdom.
Groupe Aeroplan Inc. has entered into a new strategic alliance with Cardlytics and is one of several investors that provided some $33 million to fund growth in multiple regions, the companies announced in a Sept. 8 press release.
Cardlytics’ new partner will enable it to use Groupe’s transaction-driven marketing to improve rewards offers to consumers, the firm said. Cardlytics tracks consumer purchase history through its proprietary system, which is tied to a bank’s Internet-banking service, to place merchant offers based on relevant transaction data.
Groupe owns Canadian loyalty program Aeroplan, which has a significant established merchant network. Adding Cardlytics’ system to the mix potentially could interest Canadian banks in adding merchant-funded rewards, Jacob Jegher, a senior analyst in the banking sector with research firm Celent, tells PaymentsSource.
“It’s very possible [Cardlytics] could partner with Canadian merchants and that could encourage Canadian banks to participate [in the program],” Jegher notes.
Canadian consumers have a similar demand for loyalty programs as Americans, Jegher says, adding that Cardlytics’ program is likely to be attractive to Canadian consumers. “Could this be another hook for Canadian banks to try and establish relationships with those consumers and bring loyalty through rewards? Absolutely.”
Cardlytics executives were not immediately available for comment about the deal.
Groupe’s investment comes at a time when merchant-funded rewards are expected to explode thanks to reduced debit interchange rates from the Durbin amendment and the Federal Reserve Board’s subsequent ruling, according to a June report from Aite Group.
Aite predicts that card issuers’ annual revenue from merchant-funded incentive programs will more than quadruple over the next four years, amounting to $1.7 billion by 2015 from about $300 million presently (
Card issuers on average by 2015 will derive an additional $12 in revenue annually from each account in which a cardholder redeems about a dozen offers per year, apart from existing fees including interchange and interest, the report said. Credit card issuers will reap $18 in additional revenue annually from accounts that routinely redeem offers, while debit card issuers will see $8 more annually from such accounts.
“This space has reached the tipping point,” Madeline Aufseeser, an Aite Group senior analyst and author of a report released June 21, tells PaymentsSource. “It’s been fueled by advancements in technology and then the Durbin amendment, which eliminated the ability to do traditional debit card rewards because the margins are just not there to support it.”
Cardlytics predicts it will extend it services to 70% of all U.S. households by the first quarter of 2012. Aufseeser views that figure as ambitious at best.
“They are going to have to be in every single bank demand deposit account and debit card program and that might not even get them that number,” she says.
Aufseeser notes Cardlytics still lacks partnerships with the top retail banks in the U.S.
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