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.