It’s a time-honored test to drive traffic. Search through financial stories, find any nugget about heavily-scrutinized banks, and blast away. Question anything and everything a bank does, never question the rest of the corporate world, and you’re home free.
Readers will flock in droves. Banks and money are common denominators — everyone must use a variant of each. We have a vested interest in banks, whether ours or our neighbor’s.
So it’s no surprise when CNN Money cries foul; Consumerist always echoes quickly anytime a bank dares to cover its cost. In this case, they basically rewrote the CNN story and wagged their finger. You remember the cry foul at debit-card reform. Now, CNN and Consumerist encourage you to fret about banks turning a profit without charging you a fee. The horror.
CNN originally framed their story as “Banks selling shopping data.” It’s now more tame, “Banks’ billion dollar idea.” Someone probably realized the story is a troll, fashioned by a blog editor who read a press release and decided to point an uninformed finger at banks. It’s not even the banks making the billion. Let’s take a look.
Banks have found a new revenue stream — and this time, it doesn’t involve hitting you up with a new fee.
Many of the nation’s leading banks are using information about their customers’ shopping habits — how much they spend, where they shop, what they buy — to make money.
Wait – are you telling me this is good news or bad? I’m not sure. So I’m not getting a fee, and banks are making money specifically so that I’m not hit with a fee. Go on. (I guess.)
Banks don’t actually hand over your data to retailers. Instead, retailers describe what type of customer they’d like to target and the bank then sends the deal to customers who fit the profile. When the customer cashes in, the bank gets paid a commission.
So the retailers provide leads based on habits, and the retailers provide the coupons. But wait, do the retailers describe customer behavior to banks? And banks comb through data and pick out the proper leads. Then they send deals to the customers who match up? Who do these banks think they are, Groupon? Why, they’re totally changing their business model!
Merchants pay banks an average fee of 10% to 15% of the purchase price of a product each time a customer uses a discount that’s generated from the bank’s data, according to Cardlytics, an intermediary that works with both banks and retailers.
Cardlytics sounds official. Probably a consumer watchdog organization.
Typically, the bank takes a 25% cut of that fee and pays the rest to an intermediary, like Cardlytics.
Wait, Cardlytics is the intermediary? So they’re making the money! Not only are they selling their software and practice to banks and merchants, they apparently plant press releases with CNN that besmirch their clientele. High five?
Cardlytics, a third-party software company, controls this process. They run a bank’s debit-card data and habits through a gauntlet of anonymity. They recruit merchants, encouraging the merchant to proffer coupons in exchange for leads, based on these habits. On the other hand, they sign a sales agreement with banks, who provide the anonymous data and coupon disbursement for a cut of the action.
Know who else, besides banks, needs to turn a profit? Every merchant everywhere. Know how many of these merchants benefit from coupon use? Probably 100 percent. Know who is making a killing in income, based on setup fees, usage fees, rights to the software that cloaks all sensitive data, and sales?
Cardlytics. The software company.
But you wouldn’t call them evil. Nope, they’re just a band of innovators, who smartly decided to sell a software solution parsing anonymous customer data through two sales channels.
Banks absorb the cost of account credit and redemption, while merchants absorb the cost of buying leads and proffering coupons. It’s rather ingenious, and none of these guys – not bank, not merchant, not software – ever has to see a customer name. So your neighborhood teller doesn’t know that you redeemed that coupon for Zookeeper, for example.
So if a customer buys a $1,000 couch, the merchant pays a fee of up to $150 to the bank and the bank walks away with $37.50.
So you’ve bought a new $1000 couch. Congrats! You have a couch. You saved a buck.
Merchant gets $1000, less coupon redemption, which is credited by the bank. Merchant is further out $150 in fee. Cost of doing business.
And merchant pays that fee to the bank. The bank earns 25% of that fee, $37.50. Cost of doing business. Where’d the rest of that $150 go?
You know where. Cardlytics earned $122.50.
The merchant got $850, Cardlytics got $122 and the bank got $38. “Consumerists” will complain the merchants has costs to acquire and sell the couch. Additional consumerists may point to software maintenance as Cardlytics cost. This is true. But processing the transaction, offering the coupon, and redeeming the credit is another cost of doing business.
Just because you can see a couch, understand the concept of software, but don’t understand bank processing, doesn’t mean each side doesn’t have real costs. It’s not “free money” to anyone.
Except, of course, the redemptive cost for you. You bought the couch. Now you have a couch. And you saved whatever; maybe $50, maybe $100, maybe the cost of coupon $150. So you’re ahead, too. What’s to hate about that?
