The Revolutionary Way Marketers Read Your Financial Footprints

Forbes When Blogs Attack

Forbes When Blogs Attack (Photo credit: niallkennedy)

The Revolutionary Way Marketers Read Your Financial Footprints


laude and grimes Cardlytics founders Scott Grimes and Lynne Laube Lynne Laube and Scott Grimes were among the few Capital One employees left at the office late one afternoon just before Thanksgiving break in 2007. It had been a long day, and they were kicking back in their own nerdy way: spinning stories about anonymous strangers by looking at their card-transaction data. “This looks like a soccer mom. You can tell because she is going toMcDonald’s MCD +0.32% and then Target TGT -0.75% and then McDonalds and Babies ‘R’ Us,” says Laube. Grimes pointed to another set of data: “This is clearly a single guy. … He purchases at bars and Taco Bell.”

At one point the two executives looked at each other and went silent. “As far as we knew, no one was really using these stories to help marketers better reach that customer,” Grimes says. Card-swipe data was a largely untapped mother lode for banks that, seeing the growth of daily-deal startups likeGroupon GRPN -0.66%, would be able to make a little extra money (and win loyalty) by pitching targeted deals to customers. The banks would need a nimble middleman to crunch the data and deliver the offers. Within months the two quit their jobs and started Cardlytics. Laube, 43, Cardlytics’ president and COO, and Grimes, 51, its CEO, have since helped pioneer a data-driven advertising niche called merchant-funded rewards. It targets people based on what they buy, not who they are. “If you know where and how someone is spending money, you know lots of things about them without having to know their personally identifying information,” Laube says. Cardlytics, based in Atlanta, has a view into 70% of U.S. bank customers. Its servers will have read 11 billion U.S. transactions this year, amounting to $500 billion of spending. Its algorithms serve up 1 billion ads a month to more than 35 million customers on the websites and mobile apps of 400 banks, including Bank of America BAC -0.06%, PNC, Regions and Lloyds Banking Group. Cardlytics says it drives $500 million in sales every quarter across all banks. In a typical arrangement the Sports Authority would want to know everyone who spends more than $100 a month on sporting goods but not at its stores. Cardlytics serves up a Sports Authority offer to those people, and Cardlytics and the banks share a commission from the merchant, typically about 10% of any resulting purchase. Merchant-funded rewards is still a nascent industry, but Cardlytics believes it has 80% of a market growing at north of 100% a year. Its rivals include Cartera Commerce, edo Interactive, FreeMonee and London-based ERN Global. Cardlytics expects to gross $25 million in the fourth quarter, for a total of $50 million for 2013, up fourfold from 2012. It expects to double revenue next year. Grimes and Laube have raised $104 million in venture funding from firms such as Canaan Partners and Polaris Venture Partners and strategic investors FIS and Aimia. The success of Cardlytics was far from a foregone conclusion. Despite their experience at Capital One (Laube was a vice president and Grimes a senior vice president), the duo was rejected by dozens of banks wrestling with the 2008 financial crisis and uneasy about sharing their customer data with two entrepreneurs with PowerPoint and no money. They couldn’t get merchants if they had no banks on board. Finally, in late 2008, they got one callback after a meeting with the biggest fish of them all: Bank of America. But on the drive from Atlanta to Charlotte, N.C. Grimes’ car caught fire, and the deal went up in smoke, literally, and then figuratively as the bank feared Cardlytics was too small and untested. They snared their first big client, Intuit, in 2009. At the time the online tax-prep giant handled online banking transactions for many small banks. “I think it worked pretty well,” says Eric Dunn, Intuit’s SVP for payments and commerce solutions. But, he says, “Cardlytics had a hard time running along behind quickly enough to provide kind of a rich set of offers to cover the banks that they were adding.” Merchants became more interested after Cardlytics finally landed Bank of America in 2010. BankAmeriDeals went live last year, and its customers have received $17 million in savings and generated more than $700 million in sales. There are limits to what Cardlytics can know or wants to know. It sees only store-level data, so if you go to CVS, Cardlytics doesn’t know whether you bought Xanax, chewing gum or condoms. “If someone is doing online gambling, we see that. If they are buying porn at an X-rated site, we see that. We obviously don’t use that data, but we do see all of the purchases,” Laube says. The banks remain sticklers for privacy, and prohibit Cardlytics and its rivals from moving the data off the banks’ servers. Aditya Bhasin, a senior vice president at BofA overseeing analytics and digital banking, says, “It is extremely important to us that customer information remains inside Bank of America and that no individual customer information is ever shared either with Cardlytics or the merchant.” The success of card-based rewards will depend on whether merchants, many of whom have soured on daily deal programs such as Groupon and LivingSocial, see any value from them. Gadi Maier, CEO and cofounder of Cardlytics competitor FreeMonee, is cautious about the field’s future–at least the way his rivals are approaching it. Promising better data analytics than rivals in boosting store sales, he has raised around $40 million in venture capital and expects sales of $10 million this year. His firm, with partners such as Citibank, Discover, Capital One and U.S. Bank, offers data-targeted gifts to customers that expire relatively quickly. “Almost all of the results that merchants are seeing in the card-linked space are the results of accidental redemption,” he says, referring to people who click on offers but use them only weeks or months later when they’re going to that store anyway. Cardlytics says it can prove the positive impact of its program by setting aside thousands of consumers as a control group who don’t get the offer. Some experts fear the success of merchant-funded rewards could prompt banks and brands to move into more sensitive categories such as health care, gambling or sex in a manner that could alienate clients. “Without any type of regulation and without any type of limit other than the profit model and greed, it seems to me to be inevitable we are going to get to the point where abuses are going to occur,” says Scott Dueweke, an expert on alternative payments at Booz Allen Hamilton. “There will be a backlash, not just from the tinfoil-hat, libertarian crowd but from people who are quite average.” “I don’t think anyone has quite figured out what level of sharing is okay and what value can be driven given the constraints,” says Deepinder Gulati, who served previously as the American Express vice president overseeing strategic insights and digital analytics. If the banks lose their appetite for rewards programs, Cardlytics has plenty of others who want access to its data insights. “We have hedge funds calling us at least once a week saying, ‘Will you sell us the data so we can use it to better predict earnings?’ ” Laube says. “ And we have enough data that I can tell you if any given retailer is going to be up or down for the quarter.” There are plenty of tempting lines of new revenue, if the banks are willing to let Cardlytics have at them. TRENDING What the 55 million users are talking about. For a deeper dive go to COMPANY A big deal with HP and a hyped customer confab in San Francisco masked a milestone: Salesforce is the first cloud-computing firm to gross $1 billion in a quarter. PERSON Kuwabatake Sanjuro That’s a pseudonym for the creator of Assassination Market, a site that lets anyone anonymously contribute Bitcoins toward a bounty on any government official. It’s Kickstarter for political hits. 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