Banks’ Growing Blindness to Consumer Activity

In the age of big data and digitization, data has become an increasingly valuable asset for banks, whose millennial customers often leave digital blueprints of their life, via online shopping, social media posts and ride share receipts. And, to no surprise, banks aren’t the only parties that understand the enormous value of this highly-contextual consumer information: merchants and marketers alike salivate over transaction data that suggests meaning and intent behind purchases and product usage.

Transaction data is so valuable that these non-financial parties have every reason to block others from accessing it – banks included. But how would a provider even go about disintermediating a bank from transaction data on their own customer? The answer lies in decoupling transaction activity from the purchasing tool.

What started as a means for locking in funds up-front and paying fewer card swipe fees has turned into a major opportunity for the merchant – and no one else – to analyze in-store consumer activity. Decoupled debit – also known as the loading of bank funds onto a store’s prepaid card – has become increasingly popular amongst merchants with strong loyalty programs, most notably Starbucks and Target.

The loading or top-up of funds is only one transaction logged against the customer’s bank account, with the many future exercises of these funds captured only within the merchant’s transactional records. For large load volumes in particular, the bank loses transparency into the frequency of visits to the store as well as the customer’s average basket size. A $100 deposit on a reloadable store card could translate into ten separate visits over the course of two weeks (e.g., morning coffee) or two large purchases over the course of a summer.

Decouple debit isn’t going away – it’s an opportunity for the merchant to assert greater control over their customers and an opportunity for consumers to earn double rewards points (potentially triple a la Apple Pay) on a single financial transaction. And while many would say that the incremental product usage shouldn’t matter to banks and that they should only care about total revenue from card swipes, one must acknowledge the importance of knowing consumers’ lifestyles, behaviors and financial needs.

If it were only decoupled debit, banks may have less of a reason to worry. However, there are other revenue models, typically those of digital providers, that restrict transparency into the consumer’s actual activity and product usage. The monthly bill of subscription services like Spotify (and Apple Pay in some cases) provides the bank with zero insight into the consumer’s musical preferences.

To be clear, banks have never had the luxury of tapping the types of data and insights described above. Nor have they ever had access to the itemized transaction data that the merchant owns by virtue of inventory/POS systems. However, as commerce becomes progressively more digital, it will be more and more important for banks to understand the types of activity in which consumers are engaging within these isolated ecosystems, in order to appropriately market and cater to their individual financial needs.

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