Merchant-Funded Reward Providers Face An Anticipated Market Consolidation

Payment card-based merchant-funded incentives are saturating the market, leading observers to predict market consolidation among service providers could occur soon.

Madeline Aufseeser, a senior analyst for Aite Group, believes a combination of different acquisition possibilities might happen.

A company such as Carlson Marketing Worldwide Inc., which specializes in loyalty programs, could purchase a merchant-funded rewards provider to enter the market, she tells PaymentsSource.

Similar strategic alliances already exist. In September, Cardlytics announced a partnership with Groupe Aeroplan Inc. in Canada (see story). Groupe Aeroplan owns Canadian loyalty program Aeroplan, which has a significant established merchant network. It will enable Cardlytics to use Groupe’s transaction-driven marketing to improve rewards offers to consumers.

In another scenario, transaction processors such as First Data Corp. and Fidelity National Information Services, or FIS, that already have strategic relationships with merchant-funded rewards providers could seek to purchase one of those companies, Aufseeser suggests.

“Instead of having just a strategic alliance, those processors could just purchase one and add that capability to their existing platforms,” she says.

First Data is a choice candidate to purchase a merchant-funded rewards provider because it already has a large number of partnerships with retailers and issuers, Aufseeser believes.

Another acquisition scenario would have large merchant-funded providers purchasing smaller players, Aufseeser adds.

Patricia Hewitt, director of the debit advisory service at Mercator Advisory Group in Maynard, Mass., does not rule out the possibility of a daily-deal company acquiring a merchant-funded rewards provider.

Card issuers would welcome such an alliance because they want opportunities to offer experiences specific to cardholders, and the daily-deal models fit that prospect, Hewitt contends.

“Merchants want that, too,” she says. “Their click-through rate will increase if consumers are being presented with targeted offers.”

Groupon and Cartera already have a strategic partnership (see story).  Groupon deals are integrated throughout Cartera’s performance-advertising network. Consumers can earn points, miles or cash back if they purchase a Groupon deal with their eligible card.

Cardlytics views possible acquisition targets differently.

“When I think about acquisitions, it’s to bring new capabilities to our team that we don’t have today,” company CEO Scott Grimes told PaymentsSource in November at SourceMedia’s annual ATM, Debit and Prepaid Forum. SourceMedia publishes PaymentsSource.

Cardlytics would pursue companies that help it bring new products to the market quicker than it otherwise might not be able to do, Grimes said.

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