Merchant-Funded Rewards Providers Need Scale To Maintain Success, Executive Says

At least one merchant-funded rewards provider agrees the market is large enough to support two or three key players.

However, those companies would need to build sufficient scale through merchant and card-issuer relationships to succeed, notes an executive from Cartera Commerce Inc.

“There is still a lot of room for growth, and [smaller] companies need to make a land grab to get scale,” Marc Caltabiano, Cartera vice president of marketing and products, tells PaymentsSource.

A recent Aite Group report suggests multiple companies could find long-term success offering merchant-funded rewards (see story).  The research firm predicts merchant-funded rewards will provide a meaningful revenue stream for card issuers, program managers and incentives vendors by 2015. Revenue from offering such services by 2015 could exceed $3.5 billion, split almost evenly between card issuers and third-party vendors, Aite said.

Companies such as Cartera and Cardlytics Inc. will help drive the market as they play several important roles, Aite’s report says.

Vendors own the contractual relationships with the merchants, support the underpinning technology and drive new marketing tools and analytics for the programs, the report says.

Caltabiano believe having multiple companies offering service benefits everyone involved because it increases merchant awareness about the programs.

“The whole [merchant-funded rewards] model is relatively new to merchants compared with television, radio, Internet and other forms of marketing,” he says.

Caltabiano admits, however, merchants will only choose one or two companies for long-term partnerships. Other companies could view providers that do not develop the scale merchants seek as acquisition targets, he adds.

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