McDonald's, Macy's Tap New Ad Medium: Web Bank Statements

Cardlytics Allows Advertisers to Link Promo Offers Direct to Transactions

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NEW YORK ( -- Imagine signing in to your online-banking account and finding promotions linked to your transactions. Underneath a transaction for a restaurant, there's an offer from that eatery for $10 cash back when you spend a minimum of $20. And underneath a purchase at an apparel chain, a rival offers 15% cash back for shopping at its store or website.

REWARDS: Cardlytics offers take the form of consumer rewards.
REWARDS: Cardlytics offers take the form of consumer rewards.
It may seem intrusive, but Cardlytics, the company behind the program, claims that advertisers, consumers and financial institutions are fast embracing this new advertising model. So far, major marketers such as McDonald's, Macy's and Staples have signed on with Cardlytics, while half a dozen financial institutions have implemented the service and are touting it as a rewards program for their customers.

In all, Cardlytics, a privately held company that officially launched the program last November, says it has run more than 100 marketing campaigns reaching nearly half a million customers. By the end of the summer, the company expects to have 50 to 70 financial institutions on board, reaching some 10 million customers by the end of the year.

"It's a whole new channel," said Hans Theisen, chief revenue officer. "It eliminates so much waste. I don't care whether it's digital, TV or print. You're not guessing about who your audience is. I can guarantee you're reaching a fast-food customer or apparel shopper or moviegoer."

Mr. Theisen can guarantee that because Cardlytics is privy to transaction data: the name of the merchant, date of the purchase, how much was spent and the customer's ZIP code. But it does not have access to personally identifiable data like customer names, account numbers or home addresses, which are managed by participating banks. Because of that, he downplays privacy concerns, noting that Cardlytics goes through "lots and lots" of regulatory steps in order to work with financial institutions. Customer information remains behind the bank's firewall.

Privacy "is always the first question we get, and it's the easiest to answer," he said. "We don't get privacy information. We don't cookie customers and follow them around the web. It's less infringing upon a customer's privacy than many behavioral-targeting companies."

Though customers have the ability to opt out of the program, opt-out rates across Cardlytics program have been less than 5%, said Mr. Theisen, about two-thirds less than the 12% to 15% opt-out rate the company modeled for.

Here's how it works: When a bank customer signs in to view his or her online statement they can see various reward offers in three places, alongside transactions, in a column on the transaction page or on a rewards-summary page. To activate the offer, they must click, and once the reward is activated, it is automatically converted when the consumer uses his or her debit or credit card at that merchant and the transaction is processed by their bank. No special software or interaction is necessary on the part of merchants. And because the program uses transaction data from debit cards and credit cards, the ads on the online statement are applicable to transactions made online or offline.

Cardlytics operates under a pay-for-performance model, so it gets paid only when consumers redeem an offer. Payment to Cardlytics varies based on client category and the type of offer, though advertisers receive a projection. Cardlytics declined to offer specifics on advertiser fees and said it could not legally share details on its financial arrangements with banks.

Aaron McPherson, an analyst focusing on payments and security technology at IDC Financial Insights, said that, from a security perspective, the Cardlytics program is not any riskier than other card-based rewards programs. Banks, he added, have always had the ability to target consumers based on the transactions they're making, they just haven't done it.

"Are consumers going to be freaked out by this? It's one of the reasons why banks have not historically been willing to go there," he said. "Banks have to be careful to position this as an opportunity."

THEISEN: Cardlytics chief revenue officer says his product's ability to target eliminates waste.
THEISEN: Cardlytics chief revenue officer says his product's ability to target eliminates waste.
Peder Magee, an attorney with the Federal Trade Commission, added that with programs like this, the FTC focuses on transparency and consumer control. "We're looking at those elements through the lens of consumer expectations," he said. "Businesses need to make the fact that they're tracking different consumers over time apparent and give consumer tools to say I don't want that or I do want that." Both things Cardlytics' bank partners do.

Case study
McDonald's ran a Cardlytics test program for six weeks in its Houston region that includes 140 stores, and said results exceeded expectations. The fast-food chain offered customers 10% cash back which appeared in transaction statements alongside McDonald's purchases, as well as purchases made at competing fast-food chains. Of those who had not eaten at McDonald's in the last three months (based on debit and credit card transactions) but who had eaten at a competitor, 19% converted the Golden Arches' offer. The most-active fast-food customers -- those who had spent more than $75 in the channel over the prior three months -- converted at a rate of 60%. Average campaign activation rates are 15% but have been as high as 46%, according to Cardlytics.

John Bartold, VP-loyalty solutions at Epsilon, said targeting based on transactional histories, rather than demographics is a "shortcoming," but it wouldn't be hard to layer that information in. Indeed, Cardlytics says it is able to target a desired demographic based on transaction histories.

Danny Cervantes, marketing manager McDonald's Houston region, said that the program appealed on several levels. It enabled the company to reward loyal customers as well as target competitors' customers.

"The challenge is to educate the operators on how this works. But the fact that we know the number of folks that went out and spent more, that's huge. I'm not sure we can say that about any other media vehicle," he said.

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