Nontraditional opportunities such as mobile-based marketing, group coupons and merchant-funded rewards programs are providing new ways for merchant acquirers to help retailers increase consumer spending and traffic, a recently released report suggests.
Most acquirers have “always been on the passive side when it comes to merchants,” Adil Moussa, an analyst at Aite Group and author of the November research report, tells PaymentsSource. In today’s economy, acquirers no longer should just “wait until the consumer shows up. They should be more active in driving the consumer to the merchant,” he adds.
As such, acquirers should look to nontraditional strategies to position themselves “as an agent of change in the payment industry,” Moussa suggests.
Mobile-based marketing enables merchants to send consumers coupons and discount notifications via SMS text messages. It also enables consumers to specify the types of deals they would prefer to receive, Moussa writes.
This type of loyalty option is gaining traction within the industry, as many mobile loyalty and gift card technology companies such as Denver-based Mocapay Inc. have developed platforms enabling merchants to send deals to consumers via their mobile phones (
Moreover, many merchants are looking to mobile couponing while they wait for Near Field Communication technology to enter the market (
NFC supports two-way communication with other NFC chips, enabling users to download coupons, discounts and rewards for redemption at the point of sale.
For card issuers looking to provide reward programs without increasing operational costs, merchant-funded rewards may be a noteworthy option. Through such initiatives, third-party loyalty-based companies negotiate deals with merchants and offer deals to issuers, Moussa writes.
And as the threat of lower interchange fees grows, many card issuers are looking for ways to pass off costs of rewards programs to merchants (
In the past few months, several third-party loyalty companies have launched online merchant-funded statement rewards that enable consumers to receive cash-back discounts on merchant-specific purchases when using the issuing banks credit, debit or prepaid cards.
BillShrink Inc. in November launched an online statement-rewards program that enables consumers to earn rewards, discounts and comparative pricing based on their purchase histories (
Cardlytics Inc. has a similar online-statement rewards program and is working with First National Bank of Omaha (
Overall, about 22% of new customers and 78% of repeat customers in the United States take advantage of offers they receive from merchant-funded rewards providers, Moussa writes.
Moreover, merchant-funded rewards programs generate $36.7 billion in revenue per year from new and repeat customers for merchants, while they generate $806 million annually in issuer and acquirer transaction revenue, Moussa notes in the report.
For merchants looking to increase their customer base, offering online-based group coupons may be a viable strategy, Moussa wrote.
To purchase group coupons, consumers sign up for free via a specific online-couponing service’s website such as Groupon Inc. or LivingSocial. Once they complete the initial registration, consumers begin to receive offers to purchase different deals each day.
Most deals include a substantial discount, such as $40 worth of food for $20 at a specific restaurant, Moussa notes in the report. Groupon buys the coupon from the merchant, collects the money from the consumers and splits the total purchase amount with the merchant.
Because this type of loyalty option is fairly new, many merchants will face several challenges, such as not getting enough consumer traffic or a large enough return on investment. Additionally, merchants find that 75% off the face value of their services is a high price to pay for acquiring new customers, Moussa notes.
Indeed, the “more transactions a consumer makes, the more money both the merchant and the acquirer make,” Moussa tells PaymentsSource. And whoever is able to launch nontraditional programs to help merchants increase spend and drive more consumer traffic “will really set the trend for the next battlefield,” he contends.
