When commerce is boiled down to its bare essentials one thing is abundantly clear: the entities that control the flow of money wield a great amount of power. When it comes to the Internet, money is inextricably tied to user data. The companies with the most data about their users tend to make the most money.
Daily deals sites like Groupon or LivingSocial do not have massive amounts of data about their users. (Groupon is trying to remedy that.) The daily deals system is merchant-centric. Deals are bid upon by merchants and Groupon chooses what to run for a particular period of time. Groupon and other services do not possess the kind of in-depth data about their users that would enable them to target deals to individual consumers. Hence, the daily deals, discounts and incentive services are vulnerable to companies with more powerful flow of money and more data. In that regard, banks have Groupon right in their sights
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Banks Cashing In On Data
The Chicago Tribune is reporting a new initiative by the banking industry that will bring deals and discounts to consumers through the banks themselves. Banks are selling consumers’ personalized information to merchants who in turn offer deals based on spending habits or other criteria.
If a person’s primary method of payment is some type of credit or debit card, the banks know everywhere that person goes, what they spend their money on, what their preferences are, what locations they frequent and so on.
It is an interesting method of making money for banks. Federal regulations are strict on what customer data banks can share and with what entities. According to the Tribune, the bank’s system is set up in such a way that the deals are coming from the bank, not from the merchant. Data is processed between the merchants and the banks through intermediaries, such as Cartera or Cardlytics. Personally identifiable information is randomized and customers are given numeric codes, of which only the bank will know who the user truly is.
According to the Tribune, 58% of customers have redeemed at least one deal. The incentive programs are opt-out, which 2% of customers have chosen to do. Merchant funded incentive programs could be a $1.7 billion vertical for the banking industry by 2015, even with the banks only taking 25% of the fee for the incentive.
Privacy, Data, Money = Advantage Banks
Opt-in or opt-out is a tricky question when it comes to data and privacy. Companies like Facebook have gotten into hot water with privacy advocates by making changes to their privacy policy and settings opt-out, where a lot of users will not notice or check. Think of it this way – are you getting offers from your bank? Did you remember the bank asking you if it could share your information or was it in the fine print of your cardholder’s agreement somewhere?
This brings us back to the notion of controlling the flow of money, translating that control to data and then monetizing that data. Banks are the perfect avenue for incentivized deals because they can offer merchants exactly what they are looking for. For instance, a 29-year-old male with an income above $40,000 that purchases shoes three times a year would be a perfect target for a deal from Designer Shoe Warehouse or Footlocker. Groupon cannot give merchants that level of granular information.
What will this mean for the fledgling daily deals industry going forward? Groupon had a litany of risk factors in the S-1 it filed to the Security and Exhange Commission for its initial public offering and “inability to stave off competition and clones” was one of the risk factors to Groupon’s business model. Facebook and Google have created various types of deals and “offer” campaigns and both have significant amounts of user data.
Yet, the banks have more information about customers than any Internet-based corporation ever could. If the financial industry starts muscling into deals, do the likes of Groupon and LivingSocial stand a chance?
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