Chase Media Solutions, the media unit JPMorgan Chase launched this week, will help the bank develop more credit and debit card loyalty programs funded directly by merchants instead of the increasingly fraught
The new business line could also give the financial giant a significant edge over other credit and debit issuers in countering the effects of merchants aggressively steering consumers to their own preferred checkout methods, which may become more widespread through a clause in a
The initiative also ties in with a growing trend for card issuers and merchants to work together on
The complex and increasingly controversial mechanics of payment card interchange, along with so-called merchant steering, lies at the heart of Chase's incentive to build its own media network, according to Richard Crone, a principal with Crone Consulting LLC.
In addition to reducing swipe fees by $30 billion over five years by capping rates during that period at the level that existed as of Dec. 31, 2023, the Visa/Mastercard swipe fee settlement calls for eliminating all restrictions on surcharges merchants may charge customers for accepting cards. That would compel card issuers to counter with improved incentives for consumers to pay with a credit or debit card, according to industry experts.
"The new Visa and Mastercard settlement introduces a 'carrot and stick' set of incentives, enabling merchants to apply surcharges and discounts and put tender-steering on steroids, with a real impact for the first time in payments history on consumer payment preferences," Crone said.
The Merchants Payments Coalition, which has been lobbying for swipe-fee reform for years through other methods and supports passage of the proposed
Even if the proposed Visa/Mastercard merchant settlement is scuttled or altered, which has happened with
"To ensure a strong consumer value proposition for cards, Chase has to come up with a new set of incentives for their cards to gain top-of-wallet status, and developing a digital media business is a big step in that direction," Crone said.
Harnessing the spending data of its customers, Chase Media Solutions will use technology from Figg, a transaction-based digital advertising platform that Chase purchased in 2022, to develop customized cash-back offers from marketers that will appear on the bank's own communication channels such as websites and mobile apps, according to a press release.
Chase said it will connect the bank's 80 million customers with deals from tens of millions of shopping, dining and travel merchants, and because Figg provides clear attribution, marketers will only pay the bank when a specific offer triggers a purchase.
"Our deep understanding of consumer spending across categories has driven us to reimagine what retail media networks can offer," said Rich Muhlstock, president of Chase Media Solutions, in a press release Wednesday.
Chase recently piloted the concept with a handful of 30-day promotions with Air Canada, the Blue Bottle coffee chain, Solo Stove and Whataburger.
The key advantage of Chase Media Solutions' tools will be in using Chase's vast troves of data to craft customized offers for its consumer card base, its six million small-business card users and millions of merchant connections, said Aaron McPherson, a principal at AFM Consulting.
"Cardholders won't see an offer from Chase unless they meet the targeting criteria, which should be more appealing to brands than a one-size-fits-all approach like they're using now [with Chase Offers]," he said, noting that consumers now are required to sort through hundreds of offers to find one they want.
Developing a robust merchant-funded card engine on their own could take years, but the potential payoff could be worthwhile, McPherson said.
"The handwriting has been on the wall for years about declining credit-card interchange to fund card rewards, because it's happening in nearly every other market around the world. The current credit-card interchange regime in the U.S. is unsustainable, and one way or another, rates are coming down," he said.
Community banks are also alarmed about how the recently proposed class-action settlement with Visa and Mastercard may affect their revenue. The $15 billion-asset IBC Bank in Laredo, Texas, estimates the suggested interchange caps could reduce annual bank revenue by nearly 30%.
Chase also has its work cut out in building a broad, merchant-funded rewards program through its own channels, an unfamiliar discipline for the bank, Crone said. Chase has long relied on other card-linked offers called Chase Offers, powered by Atlanta-based
"At this point Chase doesn't know anything about operating a media network, but they have everything to gain here, because Chase has enough financial and customer data to create promotions drilling down to specific products through SKU-level data, or stock-keeping units, and that would tap into much bigger advertising budgets than what we're seeing today in card-linked offers that typically just promote store brands like Lululemon or Midas," Crone said.
Merchants have much to gain in steering consumers away from using cards. Walmart could save around $800 million by shifting just 1% of its payment mix from their highest- to lowest-cost payment channels, Crone estimates, which is significantly higher than the $261 million savings the retail giant might capture over three years from the proposed Visa/Mastercard swipe-fee settlement.
"The tender-steering game will become very expensive for Chase and other issuers if they are the ones funding all the rewards, and that's why they're doubling down on Chase Media now," Crone said.
Chase isn't the only card issuer exploring new merchant-funded rewards approaches. New York-based
"We're paying rewards that are three to four times what other debit cards pay," he said, noting that Future added 20,000 members in three months with the first-ever debit rewards program for frequent mass-transit riders, launched last year.
