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Why retail banks can outperform sites like Groupon

Thousands of small and medium-sized merchants, desperate for visibility and exposure have turned to daily deal sites to help drive traffic to their stores. But the profitability of such models is under scrutiny. I believe there is a huge opportunity for retail banks who could provide a sustainable alternative to daily deal sites by driving their customers to the merchants’ physical stores.

Retail banks must develop capabilities in the promotional world to fight non-bank competition

Today, there is no cornerstone of the relationships between banks and customers, or between banks and merchants that is not attacked by non-financial institutions. Pure players invade real life to drive away customers and merchants from banks. Google Wallet aims to capture merchants’ marketing budget while PayPal POS is looking to capture customer payments.  Banks are ideally positioned to jump into the world of promotional marketing and head off the competition. Setting up and running a daily deal site which connects consumers and merchants will bring them closer to understanding the needs of both parties.

Retail banks should leverage their daily deals site to strengthen the customer value proposition

Banks already know the financial situation of their customers, and are well positioned to collect additional information on their preferences and tastes. By analysing the spending behavior of their customers, banks can further fine tune the offers. In return, customers will see their preferences securely hosted by the bank, will receive offers increasingly tailored to their needs and because those offers would have been tied to their banking card or payment device, will enjoy an easier redemption, either in real-time at the point of sale, or in deferred time on their monthly statement. Moreover, a daily deal site run or branded by their bank provides customers the security that if something goes wrong, the bank will step up to take corrective action.  Those banks that already run loyalty programs, can extend the benefits offered to customers through regular and frequent promotions.

Retail banks can build a sustainable daily deals business model with merchants

Unlike the business model of daily deal sites such as Groupon which rely on a large share of the generous discounts given by the merchants for their funding, banks and merchants can come up with a business model that does not destroy value. A daily deal site run by a bank can tie all offers to the customer’s bank card, removing the need from prepayment by the customers. Small and medium merchants are only charged after a deal is redeemed. As a result merchants could afford to be more generous, creating a virtuous circle. The bank can also help merchants to target offers more specifically to their common customers so that redemption rates increase and this may also lead merchants to fund new offers more frequently. Merchants can also continue to grow their own database of contacts by adding in the new banking customers.

By monetizing their existing customer database and building revenue from merchants through converted deals and the sale of reports analysing customer spending, banks have the opportunity to compensate for their loss of interchange fees. In addition, giving their customers access to a whole new world of deals, retail banks can add further value to the relationship and build long term loyalty.

These are all reasons to believe that retail banks must, should and can outperform sites like Groupon in the eyes of customers and merchants. 

Comments: (6)

A Finextra member
A Finextra member 27 February, 2012, 20:33Be the first to give this comment the thumbs up 0 likes

Great post.  Banks have been ignoring this opportunity for too long.  Bank of America have launched AmeriDeals but beyond that there isn't much else.  It isn't difficult either...

A Finextra member
A Finextra member 28 February, 2012, 08:49Be the first to give this comment the thumbs up 0 likes

Great idea.  So why aren't more banks doing this, what are the risks?

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 28 February, 2012, 13:11Be the first to give this comment the thumbs up 0 likes

Offermatic and Cardlytics are two companies that already offer technology that enable "highly personalized offers". Offermatic is targeted at consumers and Cardlytics, at banks. Both use credit card transaction history as the primary source of spend information for creating highly-personalized offers. According to reports, the offer service recently launched by BofA uses Cardlytics. We don't have any interest in either Offermatic or Cardlytics.

However, we do have an interest in another company that offers similar technology. To comply with Finextra Community Guidelines, we won't name names nor say much more about this technology except to share our experience of pitching it to banks. We're doing this solely in response to Christoper Mc Carthy's aforementioned question,, "...why aren't more banks doing this...?".

Most banks see huge benefits with "highly personalized offers". However, a common objection we hear from them is, "We've just invested in creating a separate offers Portal / Facebook page / Twitter account. We'd like to gauge the market response before we can consider any further investments in this space." Banks readily appreciate that the type of offers we're talking about here can deliver much higher conversions than their traditional "spray and pray" style of offers. However, their "wait and watch" approach is not unjustified.

GroupOn has recently announced "Personalized Offers". Banks lack line-item spend data (e.g. My credit card  issuer knows that I spent $58 at Target last month, but it doesn't know it comprised of $10 for milk, $12 for pizza and $36 for a shirt), which severely blunts their purported ability to craft highly personalized offers. A quick glance at the sample offers displayed on Cardlytics' website will reinforce this point. At most, they can do it using spend information only from single category merchants (e.g. $58 spent at FootLocker means $58 spent on the single product category of 'shoes and sportswear'). Therefore, I'm not so sure that even the most agile among banks can outperform GroupOn and other startups in offers. 

Pierre Boces
Pierre Boces - Welcome Real-time - Aix-en-Provence 29 February, 2012, 14:02Be the first to give this comment the thumbs up 0 likes

To Michael,

Thanks for pointing out the example of Bank of America and their pilot "Bank Amerideals". 

Here is the link to the article as a complement to this blog: http://www.creditcards.org/article/new-discount-deals-be-based-spending-habits-.html 

Pierre

 

A Finextra member
A Finextra member 01 March, 2012, 13:43Be the first to give this comment the thumbs up 0 likes

@Ketharaman Swaminathan
Thanks for your reply, very informative and interesting as always!

Pierre Boces
Pierre Boces - Welcome Real-time - Aix-en-Provence 05 March, 2012, 08:31Be the first to give this comment the thumbs up 0 likes

@ Ketharaman Swaminathan

Thanks for giving me an opportunity to expand on the blog.

The investment by Banks in Social media does not contradict the development by banks of daily deals.

Social Media is another channel where daily deals could be proposed by a bank to their youngest cardholders, in complement to the Bank’s daily deal web site for their less younger cardholders.

American Express has launched its “Link, Like, Love” and “Go Social” Initiatives on Facebook to help American Express cardholders to benefit from offers they clip on the social media. The offers that are redeemed at the merchant later appear on the Cardholders’ monthly statements.

Retail Banks can outperform daily deals sites like Groupon even if they do not have complete access to the type of items that their cardholders buy.

There is already value in knowing that a cardholder spent on his credit card a total of 1000$ in airlines tickets at three different low cost companies over the last 6 months.

The information collected is good enough for a bank to propose offers targeted to a  category of merchants which are already specialized, so the deals can be linked to specific categories of products, and big retailers like Target would not be the target here. Once the cardholder is in store, there are other technologies and mechanisms to hook the customer for more frequent visits and higher spend.

Retail Banks have the legitimacy to develop daily deal site with “personalized offers”.

Retail Banks are much better positioned to collect preferences from their customers than Groupon. They can simply collect broad preferences -food, travel, entertainment, etc…- or even register more refined sub-categories -food-> fine dining, exotic, home delivery… Customers of the Bank can change their preferences in time as their needs change while the Retail Bank would continue to securely store those preferences.

Retail Banks lack the agility of telecom operators or companies like Google and Paypal.

In this competitive battle, technology is surely one of the key success factors, along with the will to jump into the thrills of the promotional world. For the on-going animation of the daily deals platform and the recruitment of merchants, early adopters may do the job themselves. Several marketing operators per country can also do the job on behalf of a Retail Bank although this may lead to the weakening of the relationship between the bank and the cardholders. As for the technology, Retail Banks have now several solutions providers, a few you named, others you did not name, including the ones you have some interest in as well as the one mentioned in my profile. So Retail Banks can acquire the agility they need in this battle by partnering with Solutions Providers and Marketing Operators.

Pierre Boces

Pierre Boces

Senior Marketing Consultant

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