A customer uses a credit card to make a contactless payment (Photographer: Simon Dawson/Bloomberg)

Banks Are Eyeing $1.5 Trillion in Credit Card Secrets

(Bloomberg Businessweek) -- Few people can get inside your head—or at least the part of your brain that makes spending decisions—quite like Scott Grimes and Lynne Laube. The co-founders of Cardlytics Inc. deal in some of the most valuable and revealing personal data on the planet: how people use their debit and credit cards. They’re quietly helping some of the largest banks in the U.S. to mine what’s known in the trade as purchase data and use it to encourage customers to buy more things with their plastic.

Conventional banks are trying to raise their data game to fend off fast-growing financial technology startups and hold on to customers. “This is the bank’s secret weapon in the digital wars,” Silvio Tavares, chief executive officer of the trade group CardLinx Association, says of purchase data. But it’s a weapon they have to be extremely careful about using.

Although consumers are constantly being asked to trade some privacy for convenience and service, banks hold a particular position of trust. In early August the Wall Street Journal reported that Facebook Inc. had approached banks and asked them to share data about their customers, to help it create services such as a way to check balances inside a Facebook app. Facebook said it wasn’t using purchase data to push advertising. Several major banks quickly put out statements saying they weren’t sharing data with the social media company.

Banks Are Eyeing $1.5 Trillion in Credit Card Secrets

The banks’ response underscored the sensitivity of their transaction data. “Most people would be surprised to know that banks are potentially monitoring that information and going to use it to give them sales offers,” says Lauren Saunders, associate director of the National Consumer Law Center, which advocates for consumer protections and privacy.

Banks send Cardlytics data without customers’ names or other personally identifiable information. Last year the company analyzed $1.5 trillion in purchase data from 2,000 financial institutions. It hunts for trends in how people are spending and then offers that information to retailers, which can pay to put customized coupons and other offers onto banks’ mobile apps. Cardlytics has, in essence, data pipelines running back into the banks, so the offers can go to the specific customers most likely to respond to them. In the U.S., customers of banks that work with Cardlytics are given a chance to opt out of its program, but the company says only a small percentage do so.

Unlike even a large retailer, Cardlytics says it can see how consumers spend their money among multiple merchants. For instance, it might identify active travelers based on their spending on hotel stays and airline purchases and work with merchants such as Airbnb Inc. to deliver them an offer. In return, Cardlytics charges the advertiser a fee—usually about 4 percent of all sales the offer generates—and the company passes a part of that money along to the bank. From its inception a decade ago through last year, the company paid about $175 million to its bank partners. The bigger draw for banks is customers’ increased use of their cards; the boost is about 9 percent, Cardlytics says.

Bank of America Corp.’s partnership with Cardlytics helped it develop BankAmeriDeals, which gives the bank’s credit and debit card holders cash-back offers at retailers. These so-called card-linked offers have become increasingly popular among consumers and could soon capture half of the global digital advertising market, according to a survey by CardLinx. “This is a good example of how, based on what we know about our customers, we can personalize the experience,” says Brent Reston, who leads digital sales at Bank of America.

Grimes, who’s the CEO of Cardlytics, says consumers see the offers as a way to get more out of their cards: “Customers, in many ways, expect the banks to use their data to provide more value.” Still, he says, banks are sometimes hesitant to let purchase data escape their walls.

Banks Are Eyeing $1.5 Trillion in Credit Card Secrets

Historically, banks have mostly used whatever purchase data they have to improve their fraud controls. Then startups began using troves of information handed over by customers themselves—for example, a money management app might scrape users’ bank account data to help them budget or move unspent money into high-yield savings accounts. That’s left banks feeling the need to catch up. “Financial institutions are sitting on this gold mine of data,” says Bradley Leimer, co-founder of financial consulting company Unconventional Ventures. “But the challenge has been that banks haven’t really thought about how their business model has evolved beyond financial services.”

Grimes says he’s seeing a change in attitude. Cardlytics has recently signed deals with JPMorgan Chase & Co. and Wells Fargo & Co., and the company is expected to generate $150 million a year in revenue this year. Since Cardlytics went public in February, its stock has jumped more than 50 percent. “We were thrown out of an awful lot of banks who were like, ‘Are you crazy? We would never let another brand in our channel,’ ” he says. “The good news is many of those are our customers today.” 

©2018 Bloomberg L.P.