Using Debit and Online Banking Programs as Revenue/Loyalty Generators

By Lynne Laube, Cardlytics

Research shows that more than half of consumers view debit and online banking programs as the most important products and services their bank offers. However, most banks do not invest in them. This can be attributed to the fact that debit cards have thin margins primarily based on interchange, and bill pay and online banking are typically managed as cost centers, generating no profit at all.However, by leveraging transaction data, banks can turn these products and services into centers that generate profit and increase customer loyalty. This information can be securely utilized in ways that bring meaningful profits and loyalty to institutions' online servicing and debit programs by enabling merchants to effectively target customers and drive revenue-generating account activity with rich reward offerings.

The Rise of Debit Banks have always known a great deal about their customers, but transaction data has had limited value. Without laborious manual entry, checks only provided a check number and an amount telling little about the payee. Other day-to-day purchases were made with cash. Debit cards changed this. In just over a decade, most consumers have moved away from cash and now make most of their purchases with a debit card. Banks not only know how much someone spent and when, they also electronically capture the merchant, the merchant's industry and the location of the purchase.

Online bankers While consumers have chosen plastic over paper with their debit cards, they have also migrated to electronic banking. Today, over half of consumers manage their banking online. In fact, about 1 out of 5 consumers go to their account servicing site every day. Online banking is a frequently visited, highly trusted and engaged channel that collectively rivals Google and Yahoo in size.

Retailers and banks are aligned Banks' proprietary transaction data and privileged online access are extraordinarily valuable to retailers and others trying to reach current and prospective customers. For many years, retailers have attempted to communicate with customers through their banks. They have experimented with a spectrum of strategies from statement stuffers to, more recently, online malls. However, all of these approaches have had limited success. They suffer from two common problems. First, they don't meet the customer where they spend their time. How many people read an insert in their credit card bill or go to a separate part of a bank's website to see a catalog of online offers? Second, banks haven't leveraged what they know - how do customers spend their money and what are they interested in? Offers brought to customers have not been targeted based on how individual consumers actually spend their money to drive relevance and response.

The rise of debit and the growth of online banking have created new opportunities for the banking industry. Banks can now bring two assets to the retail community. First, retailers can reach banking customers through the bank's trusted online channel. Second, banks can leverage their unique view into how customers shop to ensure that the right offers from retailers reach the right customers. However, this requires careful strategies specifically targeting at banking.

A bank is the custodian of its customers' transactions and has a unique online relationship with its customers. While these are very valuable assets, they also come with equally important obligations for a bank. As banks consider strategies for unlocking the value of their transaction data, they should consider the following:

Own the relationship. Pursue solutions that make your customers understand that you are using your privileged relationship to bring your customers value - not a third party. Customers appreciate that banks know a great deal about them and expect banks to leverage this knowledge.

Keep transaction data in the vault. Solutions that rely on transaction data leaving the bank are fraught with risk. Even if legal, the risk of a security or privacy breach over time is high. Customers expect banks to protect this data and they should.

Use a solution exclusively crafted for banking. Banking plays a unique and special role in the U.S. economy. Be wary of solution providers outside of the banking industry trying to tap into banking's most valuable assets. If it works for airlines, it probably doesn't work for banking.

The rise of debit and the growth of online banking have created new assets for banks to tap into during this period of unprecedented industry turmoil. Customers receive great value, and retailers cost effectively reach prospective and current customers. And, banks monetize the value of their transacting consumer relationships, increasing profits and building customer loyalty.

Lynne Laube is president and co-founder of Atlanta-based Cardlytics.