Card linked offers are an esoteric marketing channel that holds great promise, if only they could be wrestled away from the banks that publish the offers.
Card linked offers work like such.
A consumer “sees” an offer from a merchant in their bank interface.
The consumer then shops at that merchant, and the rewards – some percentage off the total basket spend – are automatically credited back to the consumer’s card after the purchase.
It saves the merchant the non-trivial hassle of needing to program POS systems to recognize and correctly credit a discount, and it also removes nearly all the friction for the consumer, who doesn’t need to fumble with a rewards program and can instead pay with their usual method of payment.
Despite their simplicity, card linked offers haven’t been without their rightful critics.
First, rewards activation is automatic.
This means that any bank customer would automatically receive the discount if they shopped at a merchant in their bank’s card linked offers portal, irrespective of actually seeing or activating the offer.
For advertising merchants, this means that a card linked offer was a guaranteed discount to – in some instances – tens of millions of cardholders without any proof that the cardholder was actually aware of the offer.
Which rolls into the second criticism.
Second, incrementality is very challenging to prove.
Because of the aforementioned mechanics, how is a merchant to know that some cardholder wasn’t going to come anyway, effectively delivering a discount to an existing customer who didn’t even see the offer?
There have been some improvements to the card linked offers business, but its potential is still capped because it resides within the walls of the banks.
For example, banks have started requiring that consumers activate offers in their banking portals by clicking the offers.
And some banks have partnered with providers that integrate into the payment processing streams of merchants to prove that cardholders were incremental by looking at past visit behaviors of the cardholders, though that can get challenging when the consumer has multiple cards.
Steps in the right direction, but it still doesn’t solve the biggest issue:
Banks are terrible at technology and individual card linked offers lack consumer relevance.
Here’s what happens.
Banks employ sales people to sell card linked offers (or they partner with a card linked offer enablement channel like Cardlytics, which we’ll get to shortly).
Sales people will only earn enough commissions to make their job worthwhile if they sell a large merchant, like Walmart.
The bank then indiscriminately publishes the Walmart offer to all their cardholders to prove maximum exposure to the retailer.
So the cardholders who’ve never shopped at a Walmart, will never shop at a Walmart, and live 71 miles from the nearest Walmart, all see Walmart at the top of their bank rewards portal, deem the rewards totally irrelevant, and never visit the rewards portal again.
Instead of this terrible campaign strategy, banks should, we don’t know, maybe use data to understand purchase patterns of their cardholders to curate relevant offers?
Crazy idea, we know.
Many banks have outsourced this effort to Cardlytics, who effectively founded the card linked offers business.
But Cardlytics has proven how non-sensical the status quo card linked offers industry is.
Software companies should adhere to the rule of 40: growth + margins should be 40%.
Cardlytics, however, is more like the rule of 5.
Look at the below table, which sums Cardlytics’ revenue CAGR and EBITDA for the rule of 40 calculation.
There are a few reasons Cardlytics (via bank publishing channels) performs so poorly in our opinion.
First is that there’s not enough relevant content on their platforms, but that’s THEIR fault.
Consumers need everyday-spend content: restaurants, grocery stores, and other local merchants.
This kind of spend – at scale – does exist, but Cardlytics and the banks won’t onboard it in any meaningful time.
More and more local merchants are digitizing on cloud POS, and these data can become available for card linked offers
But if you’ve ever talked with Cardlytics or the banks, they put up barrier after barrier in onboarding the content.
Instead, the only “local” content that everyone rewashes is the Rewards Network book of business, which equates to like independent 13,000 restaurants.
Second is that there’s a lack of UPC (SKU) data.
Retailers make up a small, small fraction of the $250B in annual US ad spend. Best estimates put this number at 2-3%, which is on par with franchisee ad funds.
That means $243B is spent by suppliers, not retailers. Suppliers are companies like Kraft, Anheuser-Busch, Heinz, and Ford.
These companies need item-level data attribution.
This data doesn’t come from banks, but does come from the point of sale.
Cardlytics overpaid to acquire Bridg to acquire this data, but the Bridg earn-out is nearly bankrupting Cardlytics. There are pending lawsuits, and TBD how this ends, but as if Cardlytics didn’t have enough problems here’s another one to add to the pile.
Third is that Cardlytics and their bank partners are at odds.
The general sentiment at banks is that Cardlytics takes the banks’ customers and then rents them back to the banks.
Banks: Cardlytics is expensive with subpar performance!
Also banks: Cardlytics is promoting themselves as an advertising network and doing so on our audiences!
The banks are finally coming around to idea that they are advertising companies and that they don’t need Cardlytics.
It’s not exactly a secret that Chase acquired Figg so they wouldn’t need to work with Cardlytics on card linked offers.
Other banks, like PNC and Bank of America, are building their own, in-house card linked offers programs.
But banks are not technology companies, and what they build will still suck. It doesn’t matter how much they spend or who they acquire, their cultures are bureaucratic where the answer to everything is “no” because of some non-existent security/privacy concern.
So companies like Square acquire their own bank charters and do away with the banks.
Which gets us to our final point.
It’s our belief that the real reason Cardlytics performs so poorly is more of an indictment of the banks as publishers than it is of Cardlytics itself.
Banks will never fix their user experience. Sure, it’s a trusted portal that consumers go to multiple times per week, but banks just don’t have the culture to innovate.
For card linked offers to be successful – and we think that they can become the gold standard for performance marketing – the user experience needs to exist somewhere else.
Like why aren’t card linked offers syndicated to Google or Apple maps? Or what about Yelp? You know: places that consumers actually go to discover content.
Upside took this idea and built a card linked offers platform on their own consumer app, but we think the eceonmics for their model are just super challenging since they’re only billing for proven incremental spend.
If Cardlytics is a rule of 5 company and they’re taking credit for non-incremental spend, just imagine what Upside’s margins must look like.
TL; DR banks suck at doing anything digital and are suffocating the life out of a promising advertising channel for merchants who are otherwise forced to pay 30% tariffs in renting back their own customers from third party delivery platforms.
Someone else needs to take over card linked offers for the business model to find its legs.