The proliferation of merchant-funded incentive programs and their growing popularity with banks is likely to open up certain new competitive fronts among credit and debit card issuers, a new Aite Group study suggests.
The potential ubiquity of merchant-funded incentive programs and their similarity also may pose challenges for issuers and vendors seeking to differentiate their products from rivals’ offerings, according to Madeline Aufseeser, an Aite Group senior analyst and author of a report, which also projected sizable growth in merchant-funded card rewards initiatives (
“Issuers will likely try to set their merchant-funded incentive offers apart from competitors’ by seeking vendors that will help them create a sense of truly personalized offers for cardholders,” Aufseeser told PaymentsSource in an interview. “The goal for issuers will be finding vendors that can really drive the offer down to individual relevancy, so each cardholder receives offers that make sense for their choices and lifestyles.”
Issuers’ and vendors’ ability to provide robust consumer privacy and convenience in using merchant-funded incentives also will likely become a key competitive differentiator among offerings.
Each vendor of merchant-funded incentives may bring an unusual twist to their services, such as the types of offers available, how the offers are presented, the richness and type of data they capture, and how the data are analyzed, she said.
Competition among vendors also eventually may center on the percentage of revenue vendors share with issuers and the mix of merchants participating in various programs, Aufseeser said.
“Vendors say merchants are clamoring for this stuff, and although some merchants may have some hesitation to participate, when vendors can show merchants higher revenues after getting involved, it is going to be hard to argue with results,” she said.
Moreover, long-term success with merchant-funded incentive programs will depend on vendors’ ability to contract with merchants and maintain their participation, Aufseeser said.
Examples of merchants already participating in some form of merchant-funded incentives with banks include Wal-Mart Stores Inc., Best Buy Co. Inc. and Target Corp., according to the report.
If present trends among issuers adopting merchant-funded incentive programs continues, Aite predicts that by 2015 retailers will spend 3% of their total advertising spend on fees for placement in banks’ merchant-funded card-payment incentive programs.
Though the various ways vendors will promote and sell programs to merchants are still evolving, vendors “could benefit from working with merchant acquirers to attract and retain more merchants,” Aufseeser suggests.
