Deals as a competitive differentiator in the financial sector

In my blog "Customer acquisition cost: probably the most valuable metric for Fintechs" (https://bankloch.blogspot.com/2020/06/customer-acquisition-cost-probably-most.html) I described how a customer acquisition strategy can make or break a Fintech.

In the traditional Retail sector, focused on selling different types of products for personal usage to end-customers, customer acquisition is just as important. No wonder that the advertisement sector is a multi-billion dollar industry. However in recent years due to the digitalization and consequently the rise of Digital Marketing, customer acquisition has become much more focused on delivering the right message via the right channel to the right person on the right time. Big tech players like Google and Facebook are specialized in this kind of targeted marketing, which is a key factor for their success and multi-billion valuations. Their exponential growth in marketing revenues seems however coming to a halt, as digital marketing budgets decline and marketeers search for an even more individualized targeting of customers and more engaging experiences.

Fintech companies and traditional financial service players are ideally positioned to take a role in this evolution. Not only do they have the technical capabilities to provide excellent user experiences, but they (can) also have access to very valuable financial transaction information (allowing excellent segmentation of customers) and to large customer bases (from their own or via partnerships with incumbent banks) and have experience in managing automated payment flows, allowing a more engaging customer journey.

Many players in the financial industry are already exploring these options, supporting features like:

• Coupons (paper coupons, web-to-print coupons, discount/promotion codes, free shipping, buy-one get-one,…​)

• Vouchers (offered at a discount or not)

• Cash backs

• Loyalty programs

• Targeted advertising

• Customer surveying

• Selling anonymized aggregated data to retailers

• Bill negotiation services, i.e. proposing (cheaper) alternatives for specific costs (e.g. recurring costs such as electricity bills)

• …​

Those features are very interesting for a financial services company as they:

• Allow to reward and retain the customer, by offering buying power increases which are actually paid by third parties.

• Allow to increase and diversify (away from interest-rate linked income) the revenue streams

• Allow to offer services to SMEs and corporate customers for customer acquisition (via the financial services company’s own retail customer base)

As a result many companies are exploring this domain.
Some international examples being:

• Honey: bought end 2019 for a staggering 4 billion $ by PayPal (undoubtedly one of the biggest Fintechs in the world), this website and Chrome extension, allows to (almost) automatically apply discount codes and coupons at checkout.

• Credit card companies, like American Express, VISA, MasterCard and UnionPay, offering all kinds of loyalty programs, like cashbacks or miles rewards.

• Ability to include coupons and loyalty cards in a digital wallet, like the Apple or Google Wallet.

• Bill negotiation services, like Billshark (integrated with Radius Bank), Trim, Truebill, Minna Technologies (integrated with ING, Swedbank and Spare Bank), that offer to negotiate consumers’ bills to help them save money.

but also more locally in Belgium with initiatives like:

• KBC and ING offering cash-back deals to their customers, based on the automatic identification of specific transactions happening on their bank accounts.

• Cake and Swave offering cashbacks based on PSD2 and Cake also paying its users a part of the revenue they make from selling anonymized aggregated data to retailers (a piece of the Cake as a reward for sharing data)

• Loyalty cards becoming more digital, via tools like Stocard and FidMe, but also via the Payconiq by Bancontact app or for local small shops via the digital Joyn loyalty card.

Of course banks and Fintechs are not alone in trying to reward their customers via buying power increases, through deals like coupons and cashbacks.
Also other sectors try to offer more and more digital deals (coupons or other deal types), as it forms both a source of revenue and a way to reward and retain their customers. For example:

• Media companies, like newspapers, digital platforms, social media platforms…​

• Social voucher issuing companies, like Monizze

• Utilities and telecom companies like Luminus and Telenet (e.g. Telenet offers discounts on electrical devices like smartphones, but the discount needs to be paid back if the customer does not stay an additional 9 months as Telenet customer)

• Social Secretariats like the SD Worx deals platform

• Employer Benefit programs, like Merits & Benefits, Ekivita, Het Financieel Huis, Benefits at Work, MijnBedrijfsKorting or PlusPas

• Specific deal cards like FamilyCard or Gezinsbond

• General deal platforms like myShopi, Couponeke, Koopon.be, Bonnenwereld, Promolife, Shopbuddies, CashbackXL, CashbackDeals, Korting.com, EuroClix, LetyShops, NuCash, Qassa, Spydeals…​

• Specialized deal platform like Trooper, which allows to sponsor your local organization or a specific charity, via a sort of cash back mechanism. This platform is also integrated and supported by banking platforms like Payconiq by Bancontact and KBC.

• Discount sites like Groupon, Social Deal, SmartSave

• …​

Each player ("Deal Publisher") has a different and specific value-proposition towards its consumers and merchants ("Advertisers"), i.e.

• Size of the customer base (e.g. traditional banks like KBC and ING can give an exposure to hundreds of thousands of potential customers)

• Engagement with the platform: users are more engaged with certain platforms than others (e.g. the average number of logins per month per user on the platform). Furthermore certain platforms come with a reputation of credibility, which shines off on the presented deals. Fintechs and banks will typically score well on both engagement and credibility, making it a very interesting place to advertise on.

• The type of deals proposed on the platform. E.g. a cas-back is typically more user-friendly (especially when automatically identified from the bank transaction history) than a coupon, but for an "Advertiser" the binding factor might be lower than for a coupon.
  By forcing the customer to activate a cashback deal and by sending notifications to the user when a cashback is identified and (later) when it’s paid out, this binding can be increased.

• The possibility to segment, i.e. this depends on the amount and quality of the data the publisher has on its users and the consents/opt-ins (cfr. GDPR policy) these users have given to use their data. Obviously a bank or Fintech having access to financial and KYC information have typically a lot of good-quality data to segment on.

• The services which can be offered to the advertiser. This consists not only of a user-friendly onboarding and management of deals, but also of a well-managed invoicing and settlement process and a monitoring system of the deal usage. Especially this (real-time) monitoring of the deals (who saw a deal, who clicked on a deal, who used a deal…​) can give very valuable insights to "Advertisers". Obviously "Advertisers" would like to have a maximum of info about each person who interacted with a deal, but "Publishers" (especially in the financial industry) will be very reluctant (and might not even be legally allowed) to share this data with third parties.

Banks and Fintechs can furthermore really differentiate themselves by offering new innovative ways of engaging with customers through deals. These new ways are typically only available to publishers with (near) real-time availability to data about what the customer is currently doing (e.g. financial data via PSD2 or geo-location data via GPS tracking), e.g.

• Coupons and cashbacks that are only offered to a very specific segment of customers, based on customer data and also financial data. This allows for example to offer a deal only to customers who are shopping at the competition, who didn’t shop during a certain period at the merchant (= the "Advertiser") or who visited recently a complementary shop (e.g. someone who is buying a new bathroom is likely going to shop also for new towels)

• Deals which only appear based on the customer’s location (geofencing) and other real-time conditions, such as timing, weather conditions…​. Examples are local shop coupons which are pushed when you are in the neighborhood, coupons for restaurants which are only pushed at lunch hours or coupons for ice-cream which are only pushed when the weather is sunny.

• Deals which are the result of another action. E.g. a parking ticket which is paid back automatically, when a transaction is done in a nearby shop. While before this required a complex process of validating your parking ticket at the shop, this can now be automatically identified and reimbursed via PSD2.

• Deals for which the conditions (such as the discount percentage) dynamically adapt based on specific characteristics (e.g. based on the fact if the user is an existing customer or not).
  A nice example in this category exists in IKEA Dubai, which is offering money based on the time people took to come to the store (cfr. https://www.pymnts.com/news/retail/2020/ikea-allows-consumers-to-use-time-as-currency/). This deal rewards customers taking the time to come to the shop, offering an incentive for physical shopping (over online shopping) and reducing the need for a chain to have shops all over the country.

• …​

All these innovations strive to target the customer more personally and with more engagement (i.e. the right message via the right channel at the right time), while offering a frictionless check-out experience, cfr. my blog 'A frictionless check-out experience, what does that actually mean?' (https://bankloch.blogspot.com/2020/04/a-frictionless-check-out-experience.html) for a more detailed analysis on this.

Today most of these customer loyalty/acquisition tools are still far from being frictionless, but they are evolving in the right direction:

• Loyalty cards: in recent years we have seen a strong evolution in this, i.e. from looking up your name in the computer, to a physical card with a bar- or QR-code on it, to the digital equivalent in Stocard, FidMe or another tool (a digital loyalty card is 10 to 25 times less expensive than a traditional plastic card) all the way to a store-specific application which combines loyalty saving directly with payments (e.g. the Xtra app of Colruyt group in Belgium).
  But even then there is still room for improvement, like allowing a customer to link his loyalty card to his payment card (meaning the merchant can automatically apply loyalty points from the used bank account), contactless loyalty cards based on NFC or automatic identification of transactions via PSD2. A financial services company can play a role in all those evolutions, especially when banking apps allow to onboard also loyalty cards.

• Vouchers: gift vouchers can be a powerful tool for customer acquisition. Especially during the Covid-relaunch this mechanism has been heavily used by governments (both state and local governments) to boost spending consumption (e.g. the consumption voucher in Belgium boosting sectors most impacted by Covid and a ton of different city gift vouchers issued by local governments to support their local commerce overcome the impacts of Covid). Check out my blogs "A gift voucher - It’s all about the story telling" (https://bankloch.blogspot.com/2020/06/a-gift-voucher-its-all-about-story.html) and "Pre-paid cards - An outdated concept with a lot of innovative potential" (https://www.blogger.com/blog/post/edit/1263576023865631736/284330421348803999) for more info on the customer acquisition potential of these kind of vouchers.

• Coupons: coupons have also undergone a major transformation, i.e. from coupons which had to be cut out, collected by merchants and then sent in bulk to a clearinghouse (like HighCo) for settlement (counting and sorting coupons and billing manufacturers), to more digital platforms which allow to scan coupons, automatically verify its eligibility and automatically handle settlement (like GS1 Coupon Data Pool), all the way to electronic couponing (eCoupons) and cashback solutions. These electronic coupons have the same advantages as digital vouchers and digital loyalty cards, i.e. cheaper to produce, more secure, less risk of fraud, more hygienical and ecological, possibility to notify user when a coupon can be used or when it is about to expire…​, but obviously the necessary infrastructure for all involved stakeholders (consumer, merchant, advertiser, coupon custody service…​) should be in place. In the end, it is important to make the process as secure and user-friendly as possible for all involved parties, i.e.

  • Customers want to have a frictionless way to activate and use a coupon

  • Deal Publishers want to offer deals in most efficient way and want to position deals as a buying power increase available thanks to them.

  • Merchants want to lose as little time as possible in accepting the coupon and want to make sure that a coupon discount is only applied when eligible (especially with an Open Loop coupon or also called Brand coupon, paid by a manufacturer, the merchant doesn’t want to miss out the reimbursement by the manufacturer)

  • Manufacturers offering Open Loop deals want maximum protection against fraud, i.e. ensure that the merchant sells the right product to obtain the discount linked to the coupon. By exchanging automatically information like store location, date/time of the acquisition, cash receipt number, purchased product…​ between merchant and a central authority this risk of fraud can be minimized.

Obviously in all these evolutions, there is a continuous struggle between:

• All parties wanting to have as little friction as possible

• The "Advertiser" placing the deal wants the strongest connection (effect/engagement) with the consumer. E.g. in many supermarkets with extensive and digital loyalty programs, there is still a paper voucher given to the customer, while this could be very easily digitized. This is deliberately done, as the paper voucher gives a more conscious feeling of "reward" to the user, than just a reduction of the same amount on the next bill.

• All parties want to share a minimum of their data, as data is valuable, but also because sharing data is risky, complex (from a GDPR perspective) and often negatively perceived by customers. E.g. "Publishers" do not want to give personal details about customers activating a deal or profiting from a deal, while merchants do not want to share any ticket information. As such in many countries it is currently not possible to work with cashbacks on part of a transaction (e.g. only on certain products), as the bill information is not available.

• Digitalization can bring a lot of benefits, but the necessary technical infrastructure and standardization is often not yet in place (and not likely to be in place very soon) and not all stakeholders have already the same degree of digitization.

• A deals solution should not only be able to cope with standard cases, but also with all kind of exceptions, like what to do in case of refunding of a product on which a deal (coupon/cash-back/voucher) was applied, how to properly identify a merchant in case of a cashback, e.g. in case of a collecting PSP (like Mollie) or in case of unrecognizable merchant name (often in case of franchising)…​

• The lack of a good marketplace (hub) on which Advertisers and Publishers can easily be matched for deals (a system like Google Adworks, which dominates the digital marketing ecosystem). This would reduce costs for both Publishers and Advertisers, as matching and all other related services (like exchanging deal referential data, sharing deal usage information, invoicing & settlement…​) could be done much more automated (just like Google Adworks does for digital advertisement).
  As a result it becomes very complex for both "Publishers" and "Advertisers" to come to an effective business model, meaning that most financial institutions still make their business case for deals on non-financial benefits (like customer retention).

• Deals are becoming more and more innovative in a search for more personalization and engagement. This results obviously in more complex technical setups. Combine this with an increasing awareness of Data Privacy (resulting in different security mechanism and the disabling of all kind of techniques formerly used like cookies, pop-ups…​), it is clear that today’s technical infrastructure is insufficient to support all desired use cases.

Despite all these obstacles, "Deals" can bring enormous value to both "Advertisers" and "Publishers", when properly used. However clearly a lot of technical evolutions are still required to optimize the experience and create maximum value for all involved stakeholders. Just like in the banking space, with the "Open Banking" initiative, an initiative like "Open Retail", where the customer becomes the owner of his own personal data (including their ticketing information), should be able to resolve a lot of the existing limitations.