Jul 12, 2007

Fresh data reveals a new way for payment brands to dramatically increase market share

Gartner suggests that payment brands need to “introduce Payment Information Value Added Services (PIVAS) to reduce pricing pressure from merchants and convince them of the real value of bank-sponsored retail payment networks.” Welcome now has fresh new statistics that show that these services also help payment brands dramatically increase transaction volume and market share.

We have been building ROI models with our customers for years, primarily concerning the bank’s own card issuer related metrics on cardholder acquisition, card usage, retention, etc. Banks have now begun sharing new data that can help understand how a payment brand can benefit when merchants are excited. The results confirm our premise that a payment brand becomes much more competitive when merchants can use data hidden inside the card’s chip to deliver targeted messages and promotions on the POS receipt. What do merchants think, in a nutshell? “Nine out of ten merchants perceive it positively,” says a Kasikornbank executive in a Cards International interview. “Instant marketing at the POS is the way we convey the concept to the merchants.”

The graph below summarizes the results achieved at specific merchants in various retail categories. The figures show that a card brand’s transaction volume can increase by an average of 75% when merchants use the card as a targeted promotional marketing platform. What drives such a high increase? The fact that merchants find the payment product valuable, of course!

When a scheme’s product is valuable to merchants:

  • Merchants encourage customers to use that payment product over others.

  • Merchants encourage customers to get a card if they don’t already have one.

  • The cards are more attractive to customers, so easier to sell.

  • Interchange fees are more easily justified with regards to that payment scheme.

  • The product is adopted by more issuers.

When the product is not valuable to merchants:

  • They encourage use of cheaper payment methods (such as cash).

  • They make no special efforts to promote card acquisition.

  • The cards are no different than those of other payment schemes.

  • High interchange fees are not justified, and end up getting cut.

  • Banks prefer other payment products.

This is fundamental stuff. We’re talking about the engine that drives competition between payment brands. More value for merchants means more value for issuers and a powerful new way for payment brands to compete.

You can find the individual merchant case studies here, all compiled by Pierre Boces.


janet johnson said...

Hi Aneace,

One of my clients, Chockstone, has a loyalty marketing and gift card platform that allows marketers to engage with their customers (including SUBWAY and Ticketmaster) right at the POS, which is about as close to the wallet as you can get.

They've had merchants report anywhere from 4%-15% uplift in same store sales (y/y) as a result of their highly targeted loyalty and promotional offers delivered on their receipts.

I think we're seeing a groundswell of interest from merchants who want to further engage their previously anonymous customers. It's a whole new area for brand engagement and creating personal offers based on each customer's history.

The power is in turning mounds of data into information and insight...

Janet Johnson

Aneace Haddad said...

Thanks for your comment Janet. What's exciting is taking those concepts to the next level: linking targeted promotional offers to data related to any general purpose credit and debit card, not just merchant loyalty cards and gift cards. That opens the door to marketing techniques that address new and occasional customers that are not loyal, and don't want a loyalty card or gift card. A fantastic opportunity for all of the major card brands.

Bryan Johnson said...

Aneace - great post. I see what you're taking about in the issuers deflecting or at least sidetracking merchants attention to the benefits they gain by accepting a certain payment type. What other innovations do you see coming in addition to targeted promotions?