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There’s a powerful new player watching what consumers buy so it can tailor product offerings for them: the bank behind a consumer’s credit or debit card.
For years, Google and Facebook have been showing ads based on a consumer’s online behavior. Retailers from Amazon to Walgreens also regularly suction up consumers’ transaction history to steer future spending and hold your loyalty.
Now banks, too, want to turn data they already have on consumers spending habits into extra revenue by identifying likely customers for retailers. Banks are increasingly aware that they could be sitting on a gold mine of information that can be used to predict – or sway – where consumers spend. Historically, such data has been used mostly for fraud protection.
Wells Fargo began customizing retail offers for individual customers on Nov. 21, joining Chase, Bank of America, PNC, SunTrust and a slew of smaller banks.
Unlike Google or Facebook, which try to infer what consumers are interested in buying based on searches, web visits or likes, “banks have the secret weapon in that they actually know what we spend money on,” said Silvio Tavares of the trade group CardLinx Association, whose members help broker purchase-related offers. “It’s a better predictor of what we’re going to spend on.”
While banks say they’re moving cautiously and being mindful of privacy concerns, it’s not clear that consumers are fully aware of what their banks are up to.
“Ten years ago, your bank was like your psychiatrist or your minister – your bank kept secrets,” said Ed Mierzwinski, a consumer advocate at the U.S. Public Interest Research Group. Now, he says, “they think they are the same as a department store or an online merchant.”
The startup Cardlytics, one of the field’s pioneers, runs the offer programs for Wells Fargo, Chase and other banks. Though these partnerships, Cardlytics says it gets insights on about $2.8 trillion worth of annual consumer spending worldwide.
A Cardlytics rival named Augeo runs a similar program with other banks, which it declined to name. American Express has an in-house program for its cardholders. Visa targets offers on Uber’s app for credits toward rides and food delivery.
Even though banks only know where a consumer has shopped – and not specifically what they bought – they’re often able to make educated guesses.
The bank can then infer other things a consumer may like. HSBC is looking into using that data to set up automatic alerts, so that it wouldn’t decline a consumer’s card use as fraudulent when they start charging for meals in Kathmandu or Karachi.
The next step is to make location-specific offers, perhaps for a car rental, as soon as a consumer lands. Marcos Meneguzzi, HSBC’s U.S. head of cards and unsecured lending, said cardholders will welcome such offers, at least when they’re relevant. But he warns that banks could easily overstep and lose their customers’ trust.
Many of these efforts remain in their infancy, and it’s not yet clear how well they’ll catch on. The Cardlytics programs, for instance, don’t push offers through notifications. A consumer has to look for them in a banking app or website.
Abeer Bhatia, an executive with Chase’s credit-card business, said commissions barely cover operational costs. To Chase, the program is more important for incentivizing rewards-conscious consumers to use its cards.
As far as these companies are concerned, Americans have repeatedly demonstrated that they value freebies and discounts more than intangible privacy concerns.
“Consumers understand the banks are giving them ways to save money based on how they shop,” said Scott Grimes, CEO and co-founder of Cardlytics.
But banks often don’t explain clearly what they’re doing with consumer data, even though they sometimes share consumers’ transactions with outside data companies such as Cardlytics to process offers. And many banks don’t seek explicit consent, instead including these programs by reference in general agreements for the card or online banking.
Under federal law, banks merely have to let consumers withdraw from marketing, or opt out. That’s difficult to do if a consumer isn’t aware it’s happening.
Bank of America declined comment. Chase said it tries to keep disclosures simple and understandable without overwhelming consumers.
