Richard Crone has a saying: "The one who enrolls is the one who controls." It means the entity - be it a merchant, payment processor or mobile application developer - capable of obtaining the customers' contact information controls the relationships with those customers. By enrolling people in loyalty programs at the POS, for example, enrollers build databases of consumer behavior that can be leveraged to target customers more effectively.
As Crone, the founder and Chief Executive Officer at Crone Consulting LLC, put it, the result is an escalation by consumers in "purchase frequency" and "store visit velocity."
That's consultant speak for every retailer's goal: more people buying more stuff from their stores. To achieve that goal, merchants must have direct or third-party provided access to what is collectively called big data. It's an umbrella term that suggests the enormous size of the digital information generated from electronic payments, website click-throughs and every other little scrap of data consumers leave behind through interaction with social media. In fact, the data set for big data is so big it's counted in super hero-sized exabytes, terabytes and zettabytes.
Big data as a marketing handle is a fairly recent development; companies broadly called data miners have in the last few years developed the computing tools to find, harvest and package consumer data into formats that can be useful to banks, merchants and other businesses. Like a lake of crude oil beneath the sea floor or a vein of gold deep inside a mountain, big data is only useful as a commodity if it can be extracted and purified into a marketable form.
Redwood City, Calif.-based Truaxis Inc. (formerly BillShrink) farms the payment data it receives from banks and processors. Carlo Cardilli, Senior Vice President of Business Development and Sales at Truaxis, said financial institutions (FIs) are sitting on mother lodes of consumer data but lack the resources to monetize it.
"We're like a radically simple way of extracting value from the data," Cardilli said. "Basically you give us the data in a big batch, and we analyze it and give you back services that drive value for your business."
When Truaxis "scrubs" data through its automated systems, it uncovers insights into consumer behavior. For example, a transactional line of data contains not only the purchase amount, but also clues to the name of the merchant and thus the type of merchant, the location of the merchant (for instance, a standalone establishment on a street corner or a kiosk inside a mall) and the circumstances underscoring the purchase.
Cardilli offered an example of how this can work. "If you spend 10 bucks at a traditional fast casual [restaurant], you're probably dining alone," he said. "If you're spending 40 bucks, you're probably having lunch with a colleague. If you're spending 80 bucks, you're probably a family of four."
From this information, Truaxis builds spend patterns that are geographically specific to where individuals make purchases - not just cities, but individual neighborhoods and pockets within neighborhoods, Cardilli said. And then Truaxis formulates these insights into real-time services that help FIs provide greater value to their customers.
For instance, Truaxis' StatementRewards program embeds merchant rewards and discounts into online financial statements. Below a transaction line in a credit card statement showing a purchase at Amazon Inc. may appear a discount offer from Amazon - with a "click here" link for a reward for customer loyalty. Or below a DVD purchase from Blockbuster might be a discounted offer from its competitor RedBox.
"We have taken the information in real time and contextualized it," Cardilli said. "OK, based on your transactions, here's the deals that we think have the highest probability of being of interest to you."
Cardilli noted Truaxis can also help customers analyze bills to find savings, locate gas stations with the cheapest fuel prices, and steer them toward more affordable cable television and wireless phone services, given individual usage patterns. These services originate from the volume of transaction data that would otherwise sit unused in the memory banks of some institution's nameless server. "Essentially we're setting the data free," Cardilli said.
In another example, gift, loyalty and stored-value account processor SparkBase LLC gets its big data from the reported million-plus transactions processed daily over its network. SparkBase CEO Douglas Hardman said the Cleveland-based company is in an opportune position to take advantage of big data, simply because SparkBase operates the network over which the transactions are processed.
Added to the more common transaction details, SparkBase has direct access to the personal information and spending histories of the cardholders who enrolled through merchants in SparkBase's white-labeled loyalty and reward programs.
"We can build a very rich database very quickly with really not much more data than the credit card processors are getting," Hardman said. "We just have better access to it because it's happening in our ecosystem."
Among the data SparkBase has access to: the name of the clerk who processed the transaction, the serial number of the terminal over which the transaction was accepted and the exact location of the consumer if the consumer used SparkBase's mobile wallet Paycloud to make the transaction.
When transactions hit SparkBase's network, additional information augments the data, including variables such as merchant specials presently being offered and how merchants interact with their customers, which then triggers offers back to consumers.
"Within 20, 30 milliseconds, we can determine [that a customer] is eligible for this reward because he just purchased these two SKU [stock keeping unit] items and is making the purchase between these hours," Hardman said. "Those are all the things we have to do in real time. When you have the customers' mind-share, you need to be able to use it."
SparkBase merchants also take advantage of that mind-share in real time through SparkBase's Loyalty Star dashboard, which gives them access to transactions occurring in-store right then and there.
"For purposes of triggering a reward, or triggering a text message, or, hey, you've reached $1,000 spend in the last 120 days, you're entitled to a free this, or a $100 coupon, or whatever it is that the merchant has specified," Hardman said. It is therefore not enough that a company has access to big data; it is equally important what is done with it. "All the big data in the world doesn't make up for a bad product," Hardman added.
With all this data being collected on consumers - arguably "behind the scenes" or without consumers' full knowledge or consent - privacy concerns naturally arise. In a February 2012 article in the Stanford Law Review entitled "Privacy in the Age of Big Data: A Time for Big Decisions", Stanford professors Omer Tene and Jules Polonetsky wrote, "The tasks of ensuring data security and protecting privacy become harder as information is multiplied and shared ever more widely around the world."
That expanding data footprint and the global awakening to the ways it can be exploited concern Rainey Reitman, Activism Director at the San Francisco-based Electronic Frontier Foundation. "I think we're increasingly living our lives in digital spaces, where our everyday interactions have a data trail associated with them," she said. "Everything from what we're interested in, what we search for, what we buy,what we email."
Reitman pointed out that consumers are often unaware of the digital crumbs they leave behind and lackadaisical about privacy policies they hastily agree to.
The dilemma is thus one of a somewhat ignorant user base combined with companies that may fudge or cross ethical lines in the pursuit of profits. It is a complex issue of consent, and levels of consent, according to Reitman.
She offered this hypothetical: "I want to be able to shop online and go and look at websites and engage in various practices and do certain things online. I don't want that data to be used for marketing purposes. I simply just don't want to do it. Is there no option out there for me? And, frankly, there isn't."
As far as Truaxis is concerned, it treats personally identifiable information (PII) as radioactive, according to Cardilli. "We are very careful not to receive any PII from financial institutions," he said. "We don't want it. ... And we basically help the banks in anonymizing the data before they send it to us. We're just interested in patterns. We're not interested in any specific information on specific people."
Hardman said SparkBase upholds strict data usage agreements under which the sharing of one merchant's consumer data with another merchant is forbidden. But Hardman is less circumspect about privacy as it relates to loyalty and reward programs.
"I'm not doing anything with that data that you're not comfortable with," he said. "When you sign up for any of these programs, signing something that says, 'Hey, look at my data and incentivize me more accurately,' that's literally the sentence that you're signing. If I could make it that easy on the form without lawyers, I would." In fact, Hardman stressed that the data SparkBase captures is for the benefit of consumers. "We're not selling you anything extra," he said. "We're not pushing your data to anyone. We're not selling or renting your data to anyone.
Your data lives in that server for your purposes. And the moment you uncheck the box to say stop sending me emails, you stop getting emails. When you check the box to stop getting text messages, you stop getting text messages."
In a podcast, Duncan Stewart, Director of Deloitte Canada Research and co-author of Deloitte's annual research publication, TMT Predictions, said big data jumped from a $100 million market in 2009 to a $1 billion to $1.5 billion market today, with 90 percent of Fortune 500 companies planning their own big data initiatives.
But the advancements in big data may come at the expense of brick-and-mortar merchants. Companies like Google Inc., PayPal Inc. and Isis, with their mobile wallet ventures aiming for market saturation, threaten to sever the delicate relationships retailers have built with their consumers, according to Crone.
He said retailers are being displaced as mobile wallet players become the enrolling agents when consumers sign up for Google Wallet or a competing offering. The pipeline of transaction data that would normally flow to merchants through loyalty and reward programs is instead being diverted.
For example, customers with mobile wallets open on smart phones walk into stores to do nothing more than comparison shop. "That's called show-rooming," Crone said. "And merchants are not very happy about it.
"You walk into a Best Buy, and PayPal Local is showing where you can buy it on eBay. Or use PayPal's other app, known as RedLaser, and you're scanning bar codes and they tell you to buy that on eBay or anywhere else."
One of Crone's retail clients told Crone that his company worked hard to differentiate itself from its competitors through merchandising and customer service, only to be reduced to a warehouse by mobile wallets.
Crone's advice is for brick-and-mortar retailers to develop their own mobile wallets to keep customers loyal and retain control of their data. This is where ISOs and merchant level salespeople come in.
"The first thing an ISO should be worrying about is how to empower a merchant with their own shopping app," Crone said. He would steer ISOs away from near field communication (NFC)-enabled solutions, as he believes NFC payments are merely an attempt by the card brands to extend their control over the physical POS; instead, ISOs should investigate other solutions, such as bar code-based POS offers that leverage smart phone cameras.
Reselling a white-labeled mobile wallet solution may be the way for ISOs to go. SparkBase's Paycloud is one example; Fidelity National Information Services Inc., in partnership with Paydiant Inc., offers another.
Crone made it clear: by providing mobile wallets to retailers, ISOs can not only protect their existing revenue streams, but they can also participate in the benefits that flow from big data. "This is a greenfield opportunity for them," he said.
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