Expert: Banks Should Mine Data Troves to Build Merchant Loyalty

Consumers are more loyal to the form of payment they prefer than they are to any particular retail brand, a situation that could work to the benefit of card issuers and processors but also merchants, a retail consultant says. In a survey cited by Gary Charboneau, president of Wakefield, R.I.-based WGC Associates LLC, 46% consumers who prefer debit cards would shop at another store, while 41% would use another payment form, if the store they were in didn't accept debit cards. The figures for credit cards are 48% and 41%, and for contactless devices, 55% and 35%. Only personal checks commanded less loyalty than the merchant, with 24% saying they'd go to another store and 48% indicating they'd use another payment type. The message from consumers, Charboneau said at a recent payments conference held at the Federal Reserve Board's Chicago office, is “I'm more loyal to the way I want to pay than to any individual retailer. That's devastating to a retailer.” That creates opportunities for bank card issuers and their networks, said Charboneau, who until last year was an executive vice president at New York-based drugstore chain Duane Reade Inc. One approach is to work with merchants to influence customer behavior with rewards programs driven by the massive storehouses of customer data compiled by banks and processors. “Tens of thousands of terabytes of retail data are lying dormant,” he noted. “Time's a wasting.” Such data-driven programs could allow issuers to get consumers to use their cards at particular merchant locations more often, and to pull out a particular card in preference to other cards. But merchants could benefit from the programs, as well, Charboneau said. The data could help shape programs that would get shoppers who go to a particular store often to shop there even more frequently, and could help merchants cross-market products within the store. Charboneau noted to Digital Transactions News that banks and networks like Visa USA and MasterCard Worldwide have a potent reason to cooperate with merchants in creating these marketing programs. By harnessing their data, he said, they might have an easier time selling merchants on interchange fees. Retailers feel “trapped” by interchange, he said, since they don't feel they can stop accepting bank cards and yet also believe they're not getting full value for the rates they're paying on each transaction. Indeed, the interchange structure has come under attack in the past two years as scores of chains have filed antitrust lawsuits charging the networks and some banks collude in setting rates. The cases are being consolidated in a federal court.