CARD-LINKED MARKETING

CARD-LINKED MARKETING Purchase-Based Targeting and the New Advertising Channel it Powers

Advanced technology has made consumer purchase data accessible within the secure firewalls of banks, enabling the creation of a new sector known as Card-Linked Marketing. This technology which enables data gathering, deep analytics, and an ad targeting platform is creating a valuable new marketplace for banks, consumers and a new partner: advertisers. The Card-Linked Marketing (CLM) sector has placed three unlikely participants as mutual benefactors, creating a value-loop as consumers enjoy relevant ads, banks enjoy higher customer loyalty and engagement, and advertisers enjoy remarkable returns. Financial institutions can utilize their purchase data for the first time to deliver value-added services for their customers, while maintaining the security of personal identifiable information Consumers see highly relevant ads that are targeted to them based on their recent purchase behavior Advertisers have a new channel that places their messages in front of active buyers when they are most engaged CONSUMERS More Relevant Ads BANKS High Customer Loyalty CARD-LINKED MARKETING Remarkable Returns ADVERTISERS 2

The New Frontier Card-Linked Marketing was simply not possible a decade ago. The technology that enables banks to make their valuable purchase data available outside of their firewalls did not exist. Further, banks could not have known that there would be customer demand for advertising through a bank product. 80% Debit card ownership is highest among Millennials at 80%. 7 Hitachi Consulting What was the catalyst for the development of the industry? It was the growth of debit and credit card payments in lieu of paper transactions in the last decade. That was Then Ten years ago, cash and check accounted for 47% of consumer in-store purchases. 1 Today, card payments currently make up 66% of in-store transactions, 2 with debit card purchases accounting for the majority at approximately 70%. 3 Debit s total transaction share increased from roughly 19% in 2006 to 30% in 2011. 4 Gen Y Debit cards have overtaken cash to become the preferred payment option for Gen Y consumers. 8 Javelin Research & Strategy Group 8 This is Now Card transactions are now the preferred method of payment among consumers, and this method produces an immense amount of data about their purchase behavior data that was made accessible only recently. The purchase data held by banks can provide extensive insight into consumer spending behavior, particularly when the data comes from debit cards. Active debit card users make an average of 18 debit card purchases a month, while credit card holders make an average of 10 credit card purchases a month. 5 According to the Federal Reserve, payment card networks processed approximately 50 billion debit transactions in 2012. 6 Consumers are using debit cards to make everyday purchases, providing valuable data about where they choose to shop, how frequently they shop at a particular store, and how much they spend within and across categories. 3

The Birth of a New Channel The growth of card payments and the resulting increase in purchase data has set the stage for a new marketing channel that attracts and engages consumers via their online and mobile bank accounts. Over the last decade, online and mobile banking has grown dramatically as well. Today, 80% of U.S. households bank online, 9 and Forrester Research predicts 46% of all U.S. bank account holders will actively use mobile banking within the next 5 years. 10 Usage of online and mobile banking apps is also experiencing noteworthy growth: In the past 12 months, 48% of smart phone owners have used mobile banking, up from 42% in 2011 11 Consumers are using mobile phones to perform more banking related tasks than they did in previous years. According the Federal Reserve, 21% of mobile banking users deposited a check using their mobile phone in 2012 double the incidence recorded in 2011 12 37% 37% of app users download mobile banking apps. 13 54% Millennials account for 54% of mobile banking users. 14 Fueled entirely by consumer demand, the rapid growth of online and mobile banking has created a digital media channel within a banking product. Card- Linked Marketing was created by the technology that enabled the safe extraction and analysis of actual purchase data from banks, and a purchase-based targeted advertising platform that made that data actionable. Both financial institutions and advertisers have major incentives to utilize this new channel to drive incremental value for consumers: Financial Institutions are interested in driving engagement and value for their customers Advertisers are looking for ways to more efficiently engage and serve consumers, and they are discovering that purchase-driven targeting yields extraordinary returns Online and mobile banking has emerged as an effective channel to deliver consumer and advertiser value at the right place and time. 4

Card-Linked Marketing: How it Works The Technology Card-Linked Marketing technology enables companies like Cardlytics to utilize debit, credit and pre-paid transactions to gain deep insights into consumer purchase behavior. Cardlytics, the patent-holding leader in this space, analyzes the spending habits of consumers through purchase data without the data ever leaving the bank s firewall. Retailers Cardlytics Bank Campaigns Offer Management System (OMS) Offer Placement System (OMS) $ Offer Details Performance Reports Firewall Card-Linked Marketing technology varies by provider, but all Card-Linked Marketing platforms target consumers based on their purchase behavior. Cardlytics technology is specifically able to provide consumers with relevant ads through its versatile Offer Management System and Offer Placement System. The Offer Management System (OMS) hosted at Cardlytics creates custom target groups of buyers through a series of queries that are sent to the Offer Placement Systems (OPS) hosted at each bank s data center. OPS processes the queries to find custom audiences that fit the purchase profile and then matches those audiences with ads created in OMS. OPS sits behind the bank s firewall, tracking impressions, engagement, activation and redemptions. OPS anonymizes and aggregates purchase data, ensuring that no personally identifiable information is ever known. 5

The Advertiser Experience The type and scale of the data collected, as well as the depth of purchase-based targeting and analytics, varies among Card-Linked Marketing providers. With Cardlytics, advertisers can see purchases within and across categories, giving new insights into their share of wallet among consumers. Based on those insights, customized campaigns and advertising are crafted and placed on the digital bank statements of specific consumers. Cardlytics patented technology can also analyze purchase behavior to identify new or existing customers. Build custom audiences based on how consumers shop. Craft a campaign customized to a specific group of customers. Measure incremental sales and post-purchases behavior. Pay for Performance: Advertisers only pay for results. The Consumer Experience Consumers use Card-Linked Marketing by logging into their online and mobile banking accounts and activating ads which can be placed in multiple locations. Cardlytics ads, for example, can exist in a widget on the customer s accounts summary page, below transactions in the transaction summary page, or on the reward summary page. When a consumer activates an offer, the offer is automatically linked to their debit or credit card allowing them to get cash-back by simply using the linked card to make a purchase. No point-of-sale documentation, special codes or transactions are needed. Just swipe the card and a credit will appear on their statement. 6

Distinct Characteristics of Card-Linked Marketing There are a variety of marketing platforms that involve linking payment cards or that use purchase data. However, it is important to note the characteristics that are exclusive to Card-Linked Marketing, particularly when evaluating whether a program has the full benefits and assets of Card-Linked Marketing for advertisers, financial institutions and consumers. While other marketing programs have the ability to link debit and credit cards to ad targeting and distribution, Card-Linked Marketing differs because it targets individual buyers based on the actual purchases made with a debit or credit card, and distributes ads through their personal banking accounts linked to those debit or credit cards. For a marketing program to be defined as Card-Linked Marketing: the advertising platform must be presented to the consumer through their personal online and mobile banking applications the ads must be targeted based on actual purchase history the chosen marketing offers must be loaded directly to the consumer s debit or credit card Card-Linked Marketing: Provides access to a new, consumer-driven marketing channel online and mobile bank statements Drives measured off-line sales Targets ads based on individual consumer purchase history Enabled through partnerships with financial institutions and positioned as a bank reward to the consumer Offers are loaded on a consumer debit and/or credit card and redeemed with one simple swipe of the card To be most effective, the network must be large enough for advertisers to reach audiences at scale, the program must drive measureable engagement, and all transactions must be trackable, to precisely determine a return on ad spend. There are some forms of card-related advertising programs and platforms that require consumers to subscribe to offer inventories and link their cards to thirdparty offers or loyalty cards. Such programs may be effective digital marketing programs, but don t meet the definition of Card-Linked Marketing. Further, they typically do not have the scale, the engagement, the ease-of-use nor the relevance of Card-Linked Marketing. Card-Linked Marketing is a new channel that is enabled by these integrated parts. Some providers simply access purchase data, others function as ad distribution channels, and still others play the role of intermediary, matching purchase data from data brokers with profile data from distribution networks. Card-Linked Marketing relies on first-party data from partner financial institutions, secure technology to capture and analyze that data, and the technology to target, place and serve advertising to very specific buyers. 7

Key Distinguishers of Card-Linked Marketing Platforms Consumer Experience Consumers activate ads via their online or mobile banking applications with the click of a button and the reward is automatically credited to their account with the simple swipe of their debit or credit card. No printed coupons, no training needed at the point-of-sale, no need for the consumer to highlight the discount. However, not all programs offer the same user experience. It s vital for advertisers to work with a provider that offers an intuitive user experience in both the online and mobile banking channels. Financial Institution Relationships Card-Linked Marketing is powered by partnerships with financial institutions that are invested in the platform as a value-driver for their customers. Look for providers who have established relationships with financial institutions and be sure that the service is available to the full population of card holders. Data Source & Quality Consider whether the data for targeting is derived from the recent purchase history of active debit, credit and pre-paid card holders, sourced directly from financial partners, or whether it is a mash-up of multiple data sources that include limited purchase data. Purchase-based Targeting Verify ads are targeted to custom purchase-based segments. High quality purchase data will afford clients the opportunity to build segments based on purchases specific to an advertiser s category. Pay-for-Performance Pricing Make sure the pricing model reflects actual, measureable results. Cardlytics pricing ensures that advertisers pay based on the performance of their campaigns. Attribution Card-Linked Marketing makes it possible to link ads to purchases, but does it prove causality? A truly measurable program will be able to prove attribution, usually through an engagement or activation mechanism. 8

Key Distinguishers of Card-Linked Marketing Platforms Consumer Audience Size or Scale Providers only need one financial institution partner to qualify as a Card-Linked Marketing company, but having enough card holders to provide advertisers with large audiences to really move the sales dial is critical. Is the size of the bank network reaching enough households to deliver the number of buyers, engagement and/or sales necessary to meet your campaign s goals? Consumer-Demanded Platform The Card-Linked Marketing channel should be driven by consumer demand via digital banking applications, and not based strictly on email or other promotional mediums that require constant marketing budgets to maintain the audience. Consumer Opt-in or Opt-out Does the platform require consumers to opt into the program i.e. learn about the program and register for it? If yes, understand how consumers learn about the program, the process flow for adopting and participating in the program, and ask about the opt-in rate. Conversely, ask about the opt-out rate. Advertiser Network Learn the size of the advertising network that is participating on the channel and the origin of those relationships. Are they custom campaigns sold to each advertiser directly? Is the channel sold in an exchange or something in between? Analytics + Delivery Platform Working directly with analysts that design purchase-based targeted campaigns systems yields more control and more opportunities for advertisers to gain deeper insights, customize campaigns that optimize their goals, and measure their successes precisely. 9

Card-Linked Marketing Advantages for Advertisers New Capabilities Card-Linked Marketing can drive new revenue for advertisers in any commercial channel: mobile, online, and in-store. The purchase data that is used for targeting is collected at the source banks and is hardware and channel agnostic. This allows advertisers to target based on purchases made anywhere, and measure incemental revenue no matter what kind of business they operate. Advertisers can now leverage purchase data that is timely, accurate and at a scale not previously available. In addition to better data, advertisers gain insight into consumer spending across categories and can view their whole share of wallet. Best of all, Card-Linked Marketing programs can use purchase data to measure incremental revenue from offline purchases. Each and every offline dollar can be traced back to specific ads, allowing for precise attribution measurement. Rethinking Segmentation Science would argue that the best way to influence future purchase behavior is to understand past purchase behavior. Card-Linked Marketing applies this concept to segmentation. Rather than segmenting consumers based on how they might spend, Card-Linked Marketing segments consumers based on how they actually spend. Card-Linked data is comprised of billions of transaction strings that provide insight into purchase frequency, location and volume across all categories. Advertisers can segment based on any combination of these variables, among many others. Optimizing Ad Spend In addition to drastically improving targeting, segmentation and marketing intelligence, Card-Linked Marketing optimizes ad spend. All card-linked ads are directly linked to the online and mobile bank accounts they are displayed in; thus, incremental purchases can be attributed directly to ads, especially among programs that require consumers to activate offers. This allows advertisers to pay exclusively for the ads that drive incremental revenue, so ad spend is optimized on high potential, active buyers whose purchase behavior is in your target sectors. Since incremental purchases are a key performance indicator of Card-Linked Marketing, the cost of driving alternative performance metrics such as engagements or impressions is significantly reduced. Case Study: Attracting Valuable Category Shoppers Cardlytics worked with a national coffee chain to reach several of its purchased based consumer segments. Strategy Among other goals, the coffee chain wanted to target existing customers who spent frequently with its competitors. Segmentation Cardlytics created custom purchase-based segments based on who frequented the advertiser at least once every two months, at a designated basket size, and who also frequented the advertisers competitors with a similar spend profile. Targeting Cardlytics targeted the customized segment with ads that were personally crafted for the segment and included an incentive that varied based on the categories in which they purchased. Customers were targeted using Cardlytics A/B testing segmentation in order to test multiple versions of ad copy. RESULTS The ads drove engagement rates of 17% and 18% among the targeted populations. The ads also drove trip rates of 32% of the total engaged population. For every $1 dollar invested by the retailer, Cardlytics drove $4.00 in incremental revenue. 10

Card-Linked Marketing Advantages for Advertisers Individual Connections at Scale Precise targeting not only increases ROAS and reduces waste, it leads to deeper connections with consumers. Because these connections are linked to their banking relationships, advertisers can connect with consumers on a granular level, yet on an unprecedented scale. Card-Linked Marketing campaigns help advertisers learn how specific purchase-based segments respond to certain kind of ads and incentives, leading to increased intelligence about customers that can inform all marketing efforts beyond Card-Linked Marketing. Card-Linked Marketing s Fit Within the Media Mix Advertisers finally have the purchase data that completes their understanding of their target audiences: how consumers shop and how much their messages can influence behavior. With the right marketing platform, such insights will profoundly hone targeting and maximize returns on ad spend. Card-Linked Marketing can do what no other ad platform can: directly link digital ads to offline purchases as it provides marketers with a whole wallet view of their customers. Why must Card-Linked Marketing be part of your media or digital budget? Because it does three things better than other media: Complements your existing online efforts by bolstering it at its most critical point engagement, as it combines the best of direct and digital media Connects you with your best targets active buyers in your category in online and mobile banking environments. Its intuitive placement allows for seamless engagement and redemption Directly links marketing spend to incremental sales, and provides a unique, whole-wallet view of active buyers within target audiences Case Study: Increasing Customer Wallet Share Cardlytics worked with a national video rental chain to reach several of its purchase-based consumer segments. Strategy The rental chain wanted to target customers who moderately frequented its locations. The advertiser intended to capture more share of wallet among the middle 50% of its customers based on purchase frequency. Segmentation Cardlytics created custom purchasebased segments of consumers who frequented the advertiser a specific number of times and also purchased at other adjacent-category retailers. Targeting Cardlytics targeted the customized segment with ads that were personally crafted for the segment and included an incentive that varied based on the categories in which they purchased. RESULTS The ads drove engagement rates of 16% among the targeted population. The ads also drove trip rates of 47% of the total engaged population. For every $1 dollar invested in this particular segment, Cardlytics drove $6.15 in incremental revenue. 11

Evaluating Card-Linked Marketing Providers Not all Card-Linked Marketing providers are capable of delivering these advantages. The following is a selection of informational topcis to help guide decision makers in the selection of a Card-Linked Marketing platform. Engaged Audiences & Relevant Ads All Card-Linked Marketing programs claim to reach engaged audiences, due largely to the efficacy of purchase-based targeting. Purchase-based targeting does, in fact, increase ad relevancy and personalization, often increasing consumer engagement. However, marketers should always evaluate the engaged audiences a program purports to reach in several contexts. Scale The most vital context in which an audience must be evaluated is that of scale. Insufficient scale renders all other factors irrelevant. Yet, determining the true scale of an audience can be difficult because of the variety of ways Card-Linked programs report scale. Some measure scale by the number of cards or card holders they reach, while others report the number of households. Even if a single standard of measurement existed, a true understanding of scale would be impossible without an evaluation of factors like card portfolio, consumer experience, and attribution. Portfolio Type: Debit vs. Credit Many solutions in the marketplace are aligned solely with credit card portfolios. While credit card portfolios deliver the outward appearance of scale, they actually limit the accuracy of targeting and lower engagement potential. It is vital to ask, What percentage of the program s scale is rooted in credit card portfolios? Debit card usage now exceeds all other forms of noncash payments and represents 35% of total noncash payments. 15 Debit card customers visit their online and mobile banking an average of 9 times a month. 16 Custom Messaging & Placement Precise targeting and relevance is the cornerstone of any successful ad, but the ideal Card-Linked provider will also accommodate the need to craft the perfect message. Distinction is intrinsic to brand identity, and a Card-Linked program should allow a choice of placement and messaging that is consistent with current brand strategy. Case Study: Reaching New Consumers Cardlytics worked with a national home improvement retailer to reach several of its purchased based consumer segments. Strategy Among other goals, the retailer wanted to target customers who had never shopped with it, but had a history of spending within its category. Segmentation Cardlytics created custom purchasebased segment of consumers who never shopped with the advertiser but had spent a minimum of $200 within the DIY category in the last year and lived within a specific radius of its top 25 MSA s. Targeting Cardlytics targeted the customized segment with ads that were personally crafted for the segment and included an incentive that varied based on the categories in which they purchased. RESULTS Among other ads served, the offers targeted at the new customers drove an engagement rates of approximately 5% and trip rates of approximately 11% of the total engaged population. 12

Consumer Experience Engagement Metrics Targeting & Data Is the program easy to use? How does the program define and measure consumer engagement? Does the platform target based on where, how much, and how frequently customers shop? Are consumers receiving the right amount of ads? Are consumers over/under exposed to ads? Does the program have an activation mechanism? Does the platform capture purchase behavior across categories? Are consumers receiving worthwhile incentives? Does the activation mechanism sufficiently link ads to purchases? Does the platform target based on recency of purchases? Is there any guarantee ad relevancy won t be compromised? Does the method of measurement impact program costs? Can the platform target based on a customer s previous interactions with a program? Is consumer privacy protected? Does the platform allow advertisers to test ads with A/B split testing? Is the data source primarily from debit or credit transactions? 13

Scale Placement & Custom Messaging Pricing Does the Card-Linked provider have an FI network large enough to provide insight and reach at scale? Does the program allow advertisers multiple ad placement options? Is the pricing structure Pay for Performance? Does the channel have enough advertisers to ensure consumers are engaged? Are advertisers able to place ads under individual transactions? Do advertisers have the option to pay for impressions, engagements, or trips? What is the quality of the advertisers in the channel? Does the program allow creative messaging that is consistent with an advertisers brand strategy? Does the Card-Linked program offer familiar pricing that works with a client s accounting practices? Does the program reach a significant number of mobile users? Does the program allow for individual product promotion? Does the Card-Linked provider use Test vs. Control methodology to measure true incremental revenue? Does the targeted program actively engage in the channel? 14

Citations 1. Highlights from the 2008 Study of Consumer Payment Preferences. Hitachi Consulting. www.hitachiconsulting.com. http://www.hitachiconsulting.com/files/fast%20and%20without%20cash%20-%20cpps%20highlights.pdf 2. Cash Dying As Credit Card Payments Predicted To Grow In Volume: Report. Huffington Post. www.huffingtonpost.com. http://www.huffingtonpost.com/2012/06/07/credit-card-payments-growth_n_1575417.html 3. Transaction Volume Share. The Nilson Report 1008 (2012): 9. 4. See note 3 above. 5. Do People Still Love Credit Cards? Forbes. www.forbes.com. http://www.forbes.com/sites/moneybuilder/2011/03/04/do-people-still-love-credit-cards/ 6. FRB: Average Debit Card Interchange Fee by Payment Card Network. Board of Governors of the Federal Reserve Sytem. www.federalreserve.gov. http://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm 7. Millennials Are Key To Debits Success. PULSE. tetoncomm.ne. http://www.tetoncomm.net/pulse/po2011_marapr/story_2.htm 8. Javelin Strategy & Research Releases Point of Sale (POS) Payment Forecast Report - MarketWatch. MarketWatch. www.marketwatch.com/story/javelin-strategy-research-releases-point-of-sale-pos-payment-forecast-report-2013-04-08 (accessed August 23, 2013). 9. Survey Proves Value of Online Banking, Bill Pay. The Financial Brand: Marketing Insights for Banks & Credit Unions. thefinancialbrand.com http://thefinancialbrand.com/12000/fiserv-2010-online-banking-bill-pay-trends-report/ 10. Mobile banking adoption to reach 61M US consumers next year: Forrester. Mobile Commerce Daily. www.mobilecommercedaily.com http://www.mobilecommercedaily.com/mobile-banking-adoption-to-reach-61-million-u-s-consumers-next-year-forrester 11. Consumers and Mobile Financial Services 2013. Board of Governors of the Federal Reserve. federalreserve.gov. www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201303.pdf 12. See note 11 above. 13. The Case for Promoting Debit Cards: Why They Are Still a Growth Product. FIS. fisglobal.com. http://www.fisglobal.com/ucmprdpub/groups/public/documents/document/c021225.pdf 14. See note 13 above. 15. Federal Reserve Study Shows More than Three-Quarters of Noncash Payments are Now Electronic. Board of Governors of the Federal Reserve System. www.federalreserve.gov. http://www.federalreserve.gov/newsevents/press/other/20101208a.htm 16. Cardlytics Data. 15