If you’re a customer of American Express, Chase, Wells Fargo, or almost any bank these days, you know that Card-Linked Offers - “Get 5% cash back at Retailer X” are a ubiquitous feature in your Online Banking and Mobile App experience.  For the  customer, these offers haven’t changed much since they came on the market over a decade ago, although behind the scenes, there is significant innovation happening with the way these offers are targeted and measured.

Why hasn’t the experience significantly improved for customers despite this innovation?  The one big question that consumers tend to have, consistently sounds like the following

"Why don’t I get offers from the merchants where I spend the most money, like Supermarkets, Convenience stores, and Big Box stores?”

Well, it’s important to understand the history of Card-Linked offers, and the limitations of the Bank’s transaction data, to understand and  answer this one big question.


The Law of Unintended Consequences

The Durbin amendment also known as Regulation II is a provision of United States federal law, 15 U.S.C. § 1693o-2, that requires the Federal Reserve to limit fees charged to retailers for debit card processing. It was passed as part of the Dodd-Frank financial reform legislation in 2010, as a last-minute addition by Illinois Senator Richard Durbin, after whom the amendment is named.

The law severely limited the revenue from interchange that financial institutions relied upon to deliver rewards to their debit card customers. As a way to fill that gap, several start-ups aimed to create a new way to reward customers.  This new idea was known as “merchant-funded rewards” , wherein a financial institution would provide Merchants access to it’s rich transaction data and it’s large online banking audience (there was no mobile banking in 2010, as this would come later), in exchange for those Merchants delivering rewards to the Bank’s customers.  

These rewards would be delivered in a new and seamless way - customers would digitally link an offer to their card, and then shop as they normally would. When they swipe their card at a participating merchant, cash back would be credited to their bank account. This new reward experience eliminated the need for paper coupons, QR codes, and other manual methods that created friction (and long lines) at the cash register.  

Thus, a new industry was born, with several companies like Cardlytics, TruAxis, FreeMonee, and Edo Interactive all vying to create a new Marketing channel that connected Merchants, Financial Institutions, and their Customers.  These companies quickly realized that “Merchant-funded rewards” didn’t resonate with Merchants, and was replaced with a more Marketing-friendly name - “Card-Linked Offers”

The Early Days of “CLO”

The early days of Card-Linked Offers (CLO) were like most new marketing channels that are  tested by Retailers, Restaurants, and other Merchants looking for ways to reach new customers and drive traffic to their stores.  Marketers were intrigued by the 1st party transaction data, granular targeting capabilities, and ability to close the loop on these offers (ie. measuring in-store purchases that resulted from online promotions)

However, without the scale and sophistication of other large marketing channels like programmatic display ads, social advertising, and/or product listings , CLO’s were seen as an interesting niche, but not a channel  to invest any serious marketing dollars.  

Card-Linked Offers go mainstream

After a few years,  larger Financial Institutions, such as Bank of America, Chase, American Express, Wells Fargo, and Citibank realized Card-Linked Offers were here to stay, and they couldn’t deny the positive metrics they were driving at other banks.  These included some of the highest Net Promoter Scores ever recorded for banking products, an uptick in card usage, and lower  attrition rates from  checking account customers.

At the same time, the CLO platform companies were getting more sophisticated and creating advanced targeting options, incremental sales measurement, and insights into Wallet Share that Marketers were hungry for.  As more Financial Institutions opened up their huge customer bases and associated transaction data, the industry started achieving a scale that attracted the attention of Marketers and their marketing budgets  Large Marketers no longer considered CLO a niche play but  a highly efficient and measurable marketing channel and  began moving budgets out of their Direct Mail and underperforming digital channels.

“Why can’t we get Supermarkets to participate?”

As the  CLO industry continued to grow with new Financial Institutions joining,  Marketers continued to devote more of their  budgets in response to the increased scale of this growth channel.  But the Banks that had joined the CLO revolution early began  getting questions from their customers on the types of offers that were available.  While there was plenty of “content”, customers were finding that they were not receiving offers for the places they shopped the most, including Supermarkets, Convenience stores, and Big Box stores like Walmart and Target.

In fact, the Card-Linked Offer companies, and Banks that ran their own programs, were having a hard time convincing a broad array of marketers to participate.. To understand why the CLO industry was failing to attract them,  one must understand both the business models of these companies, as well as the limitations of Card-Linked Offers.

Let’s take a look at supermarkets, as grocery represents the largest percentage of retail spend in the United States. At the household level, the average spend on groceries is $4,643 per year, based on 2019 data from the U.S. Bureau of Labor Statistics.  Conventional grocery store chains have an average profit margin of about 2.2%. This means that for every dollar of sale a grocery store has, they make 2.2 cents of profit.  The main reason grocery profit margins are so low, especially for conventional grocery stores is competition.There are 38,307 grocery stores in the US according to Statistica. That’s literally 1 store for every 5,459 adults over age 18.

So why does this matter?  For one thing, with limited margins, Supermarkets tend to have relatively small Marketing budgets. They rely on manufacturers, primarily Consumer packaged good companies (CPG’s) , to advertise and drive traffic to the Stores.  For example, take Procter & Gamble, the maker of Pampers, Crest toothpaste, Bounty paper towels, and 62 other Household brands,  In 2019, P&G’s advertising spending in the United States reached $4.28 billion U.S dollars, with the primary goal of driving customers to Supermarkets, and other stores that carry their products.  

So theoretically the Card-Linked Offer companies can get Procter & Gamble, and the other CPG companies, to run offers to drive traffic to the Stores, and voila’, problem solved, right?  For CPG companies to participate, they need to understand what products are purchased as a result of these offers, and that’s where the limitations of the CLO companies come into focus.  

Level 2 vs. Level 3 data

Level 2 and Level 3 card data (also known as Level II and Level III) is a set of additional information that can be passed during a credit card transaction. Level 2 and Level 3 card data provides more information for business, commercial, corporate, purchasing, and government cardholders. In non-card network parlance, Level 2 information is what gets passed to your Bank when you swipe your card at a Merchant.  You can see this information in your Online or Mobile banking statement (or paper statement if you’re still receiving one), and this includes the Date of the transaction, the name of the Merchant, and the transaction amount.

This is the information that is available to run Card-Linked offers, for both the offer itself, as well as the targeting and measurement of each offer. Notice something missing?  That’s right, there is no mention of what products were actually purchased during the transaction, and that is essentially what Level 3 data is. Also known as SKU-level data, this is the data that you find on your paper receipt (or e-receipt) that does not get passed along the payment networks to your Bank when you swipe your card at the Store (or online).  

Now there's finally a solution!

So to recap, in order for Customers to receive Card-Linked offers from Supermarkets, and other large Retailers like Walmart and Target that rely on manufacturer dollars to drive store traffic, the SKU-level data from the receipt needs to be integrated with the Bank’s Transaction data (ie. Level III data + Level II data).  Once this happens, the CLO companies can begin providing product-level offers (Shop for Pampers at Walmart and get $5 cash back!), or even category-level offers (Shop Grocery at Target, and get $10 cash back!).  This will also enable more advanced targeting, and deeper measurement of campaign performance, so Merchants and Brands can finally understand what customers purchased when they redeemed an offer.

At Banyan, we have created the infrastructure that enables the connection of SKU-data with Bank transaction data, all in a seamless, secure, and privacy forward manner.  Banyan integrates directly with Merchants and Financial Institutions, and in the process of connecting Level III and Level II data, no personally identifiable information is ever needed.   Banyan’s CLO solution [INTERNAL LINK TO CLO PAGE] will be a powerful addition to an already productive marketing tool.

It is far past time for Card-Linked offers to evolve, and when they finally do, Customers, Marketers, and Financial Institutions will all be handsomely rewarded.

About the author:

Arlo Laitin is Chief Revenue Officer at Banyan.  He was formerly Executive Vice President of US Partnerships at Cardlytics, and a 25 year Sales veteran of the Adtech, Fintech, and SaaS industries.