Customer registers card and email with merchant (or campaign manager like Groupon)
- Processor sends all transactions file to Merchant. Card numbers are encrypted with a consistent hash. Merchant then sends this same file to digital campaign management partners (ex: Fishbowl, Cardspring, Groupon Rewards, …)
- Partners run promotions and/or loyalty based upon the Processor Data. Match the MD5 hash of the customer entered card with the MD5 hash of the PAN provided by merchant processor.
- Consumer transaction is “discounted”.. the transaction amount on your card, is different from the transaction amount on the receipt (ex 10% off). This is of course a rather broken experience.. hence the preferred option of earning loyalty points based upon total spend. (Another option is that transaction is credited to loyalty program).
- Analytics are performed on customer loyalty.. consumers can now be identified against any participating merchant and participating consumer
What do Issuers think?
They hate this approach.. Value delivered on their cards without them.. Processors are prohibited from providing PANs to merchants.. so this MD5 hash of the PAN is worthless unless the consumer enters in their card information, which enables a “match”. Banks are in a poor position to stop this since the customer specifically permissioned it. But now you can see why Banks are moving to tokenize payments.. as the token will not match the customer’s card information… and no credit will be earned. (See my blogs on tokenization)
Merchant value proposition
MFCLO is much easier than managing Groupon redemptions, or issuer CLOs, you also get MUCH BETTER data and an ability to track consumer purchases within their stores. Also has very neat “loyalty” capability for any retailer, with no tech work on the merchant side.
On the negative side, the customer experience in offer redemption is terrible, and merchants should also be aware of the very different models (who keeps card data, e-mail data, and consumer purchase patterns). Groupon is a consumer brand, having your customer register cards with them enables them to add value outside of your brand.. and only they can target. Companies like fishbowl work off of restaurant owned email database and target consumers based on merchant’s objectives. With Fishbowl and Zave (now owned by Google) offer redemption is at a line item level.. and on the receipt the customer sees.
I understand that Cardlytics and EDO are out raising capital, and claiming 200M+ cards on file.. with ability to analyze transactions across issuers. Let me just say that an agreement with FIS may give you potential for 100M cards, but you must first sell 5,000 banks to get anything done. Any investor should ask for meetings with their top 10 advertisers.. ask them their spending plans for next 12 months, then also ask Cardlytics/EDO for the invoices from their top 10 advertisers, with 6 months of history. A disconnect on where the “volume” of offers connects to who is paying for the offers will become evident…
Without giving away specific numbers.. lets just say that the open rates on offers are less than compelling for the banks. Great merchant value drives great merchant content which drives great consumer adoption… there are none of these. Banks are indeed turning it on.. and consumers are using it.. but this novelty phase will come to an end unless value is delivered each and every week.