Photo (cc) by xJason.Rogersx
By now, you’re probably familiar with local discount-of-the-day sites like LivingSocial, Groupon, and their many imitators. You may even subscribe to a few and get regular deals from your city sent to your inbox and your phone.
Guess what? Banks are ready to get in on the action and offer you some bargains too. But here’s the really interesting part: They don’t need to target you by vague geography. By virtue of your credit and debit card purchases, they have insider info – like where you shop, how much you spend, and how often.
No, they aren’t exactly selling your personal shopping details. But through third parties, they’re starting to partner with retailers to offer you deals based on your purchase history. For example, if you regularly pay with plastic at Walgreens, your bank might partner with Rite-Aid and include a 20-percent-off coupon on your online credit card statement. You get a discount for trying a new drug store, the bank gets a commission from Rite-Aid for every coupon that gets used.
It’s a potentially lucrative business: By 2015, banks could be raking in up to $1.7 billion a year by helping merchants target shoppers, according to Boston-based research firm Aite Group. They also believe this kind of “merchant-funded incentive” could replace traditional debit and credit card rewards programs.
Learn more from Money Talks News founder Stacy Johnson in the 90-second video below. Check it out, and then read on…
As Stacy mentioned, these new programs could lead to some appealing offers as merchants partnering with the bank compete for your business. But with this tactic is still in its infancy – Wells Fargo, Citibank, and Discover have already launched programs, and others will follow this fall, according to CNN – there are bound to be unanswered questions.
For instance, merchants might set restrictions on these deals (like minimum purchase or brand-specific requirements) and consumers could make a purchase assuming they will get a discount or credit that doesn’t show up on their credit card statement. Should that happen, who do they take it up with: the store, the bank, or the third party company that acts as the middleman? How do people concerned about their privacy opt out? (You are “opted-in” by default.)
If banks do uncover a new revenue stream by using your personal shopping information to offer customized deals, it could be win/win. With a new source of income, banks might feel less pressure to raise fees fees for services like checking accounts. And you save money with discounts and other offers.
But forgive us if we’re a little skeptical. Given how banks handled the swipe fee issue by raising consumer fees months before the new rules even went into effect, we take any new sources of bank revenue and consumer “benefit” with a rather large grain of salt.
If you’ve been thinking of shopping for a new banking relationship, here’s a quick primer:
- Look locally, not nationally. Big banks have more overhead, more investors, and more levels of management that separate them from the average consumer. Smaller local banks may offer better deals, especially as they try to lure away megabank customers and establish themselves.
- Check out credit unions. Even better, turn to a nonprofit, community-based financial service. They generally have better savings and loan rates and charge lower fees. You may be eligible to join a local credit union through your job, or based on the community you live in. Look them up at the Credit Union National Association and compare fees. If you’re worried about access or the number of locations, remember that many credit unions, unlike banks, share branches with each other. See if yours does at CUServiceCenter.com.
- Break the news to your bank. Let your bank know you’re ready to walk out on them over crazy fees and see what they offer. You might even bring in a comparison of your new institution’s fees compared to theirs. Until you leave, you have some leverage and might work something out. Big banks are never going to care more about you than when you’re about to leave.
- Get a switch kit. Your new bank or credit union probably has a package of paperwork you’ll need to transfer your direct deposit and tell your debtors that your money moved. At a credit union, they may even offer to do this paperwork for you. For free.
That should get things rolling, but don’t fully cash out and close down your old account immediately: Wait and make sure everything is going smoothly and that money’s going where it’s supposed to, so you don’t get hit with any more frustrating fees.