| By Jim Bruene on February 21, 2012 6:24 PM | Comments (1) |
Last week, Christophe Langlois @Visible-Banking tweeted a question about the value of in-statement rewards programs:
And my answer:
My response was partly 140-character hyperbole. It's Twitter after all. But after sleeping on it, I think what I said might actually be true.
What's the biggest problem facing online/mobile banking?
The cost to the bank. Always has been and always will be. And it's not going to get less expensive anytime soon (note 1). Every time we write about the next must-have online bell or mobile whistle, it just gives bank CFOs another gray hair.
Up until recently there were only three ways to pay for these extra expenses:
- Charge direct fees for the channel, which customers hate
- Cross sell, which is hard to attribute solely to the online channel
- Cover the costs with other revenue streams
The vast majority of banks, and every one in the United States, took the last approach. Unfortunately, this can lead to unwise pricing decisions such as the one that gave rise to the "$35 cup of coffee."
But thanks to Cardlytics, who recently took home Best of Show honors at Finovate Europe, and others, we are entering into a new era of advertising-supported banking. And that could finally make direct banking a revenue generator on its own. Not enough to pay all its costs, but enough to alter the game.
Let's assume banking customers redeem 2 offers per month and the average commission to the bank is $1 each (note 2). That's $2/mo in new revenues, almost entirely attributable to the online/mobile channel (note 3).
A bank with 25,000 online banking customers would earn about $600,000 annually. That will buy a several bells and a decent whistle.
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Notes:
1. It can be argued that in the long-term support costs per banking customer will fall dramatically as branches and human customer support are downsized.
2. Using Aite's forecasted $1.7 billion in-statement commissions in 2015 and dividing by 70 million online banking household (link).
3. You have to have the debit or credit card too, so the revenue might need to be shared with the card P&L.
4. We published a report on in-statement rewards in 2011 in our Online Banking Report.
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Jim, I love the enthusiasm (as always) and also marvel at the way you see adding $600K of additional income to our bank's bottom line (I just paid for the channel and then some!).
Even though I really like the Cardlytics model, we need a few more things to happen. We need a few more BofA sized banking partnerships to drive adoption, we need to add more contextual and proximity based merchant modeling (and recruit FI customer/merchants to fill in categories and location).
Today, too many of these merchants are national chains and offers are not necessarily directly related to existing behavior. If you shop online and use your debit card at the Gap, does that mean that you also would use a coupon at Aeropostale? Maybe. If you shop at Target, are you going to shop at Redbox? Maybe not. Some of their targeting model makes sense, but without more merchants, they fail to deliver offers in context. The other great addition would be aggregated offers, meaning taking PFM data (read: credit card purchases) to provide FI Cardlytics clients the ability to provide discounts on non-bank purchases. Why not? We have the data. At least encourage debit card behavior at the primary FI by dipping into this feed and properly offering all relevant rewards. So we have some work to do to get 1-2 offers per customer per month. But again, I like the trend.
One other concern I would have is accessibility of the average FI to the Cardlytics platform. Are core providers like Fiserv, FIS, and online banking providers like Intuit (which offers Cardlytics through Purchase Rewards to hundreds of FIs) taking a cut of that $1-2 a month per user? Our industry has some phone calls to make I think. Check the contracts.
Congratulations to Cardlytics on their ongoing success and win at Finovate. They have a great team, and the Bank of America partnership demonstrates that (and the bank's need for additional income streams). We all need a bit of that.
Brad Leimer @leimer