Cloud Payments 311 Lesson 3: Implication

by Tim Attinger

LESSON 3 DISCUSSION QUESTION: What application represents the greatest opportunity to use transaction data for marketing purposes in payments processing? Why? Click here to respond.

So far in this week’s course, we have reviewed how information has grown within and been managed by major payments network businesses. We’ve reviewed how the detailed information financial institutions might have about consumers and merchants from years of serving them as customers were used to make decisions about how to sponsor those customers into the payments network. We’ve also observed how that information, however rich and valuable, was far too much data for payments networks and processors to carry in their systems as those systems began to automate and electronify payments processing. So consumers and merchants came to be represented by account numbers connected to sales amounts, dates, and locations in data strings as transaction messages moving through the payments system.

We’ve also reviewed how risk of financial institution loss from consumer and merchant activity has been managed in the past, and how the systems that payments companies deploy to help manage that risk have moved from static to dynamic, from post-transaction strategy to in-transaction execution. (Related Briefing Room: Security and Fraud) In our last class, we will examine what value might yet be created from all of that data in the payments system, and how consumers and merchants might benefit from a simple inversion of risk management systems into marketing and promotion execution engines.

Pre-Qualified for a Sale. What if the payments business of the future were not exclusively comprised of transaction facilitation and money-movement execution? Certainly, revenues for payments businesses will always flow from managing the business of supporting financial interactions between constituencies on either side of a purchase or sale. Most definitely one of the unique values that payments processing systems provide is linking unknown parties to each other to complete a purchase. But… what if the more unique value in the business were helping those consumers and merchants find each other in the first place, well in advance of the purchase?

What if the information in a payments business’ systems could help identify for retailers where and with what customer segments they were underperforming relative to a set of competitors or relative to their own benchmarks from other areas? Perhaps careful analysis in the network’s transaction records could show a merchant how well its sales were penetrating consumers in a particular geography, even showing share of category spend by ZIP and payment product type? Would a retailer find that information valuable?

Even more, what if a payment system could help that retailer find attractive segments of consumers to whom the merchant could offer unique value propositions? Segmenting consumers by spend behavior, by product type, by ZIP associated with transactions, even by segment of total plastic spend (high, medium, low)? Might that merchant want to deliver a value proposition to a set of consumers that might increase that retailer’s share of total category expenditure with that consumer? But how?

Reverse Append for Value. A payments network trying to match consumers and merchants to create unique value exchanges is challenged by the fundamental nature of how those participants are identified in the system. As we discussed in our opening class this week, whatever rich data may have identified that consumer or merchant to the financial institution that brought them into the network has been subsumed by the need for processing efficiency and speed in the network. People with names, addresses, demographic characteristics, life-cycle markers, financial histories, and rich psychographic profiles from years of financial interactions have been reduced to account numbers in the system. Retail businesses with long histories of lending and deposit relationships are also reduced to numbers in a transaction string in the network, with little or no access to the consumers served by that same network processor.

But what if the financial institutions sponsoring those consumers and merchants into the network determined that there was enough value to be had in adding that information back — for their customers and for themselves — that they decided to bring all the detail stripped from automated processing systems back into ancillary systems to support marketing applications? What if the business proposition for payments needed to change, from generating revenues from executing transactions to something different and new — something like creating commerce by helping consumers and retailers find each other well upstream of the actual transaction? (Related Briefing Room: Innovation at the Point of Transaction)

Advertising and Marketing and Payments, Oh My. Leaning into next week’s class, what if we consider this? What if the businesses that generate the majority of their revenue from a place where sellers try to find, and motivate buyers woke up to a simple (and in this case convenient) truth: The best indicator of what a consumer will do tomorrow is what she did yesterday? That the history of transaction behavior resident in an electronic payments system is a phenomenal leading indicator of what behavior an advertiser or marketer might expect to see from a consumer next? That putting a marketing message in front of a segment of consumers who, as indicated by their purchase behavior, are predisposed to respond favorably to it will generate a far better return on investment than throwing out a scatter-shot message in mass media, hoping to find the potential customers with whom your message might resonate?

What’s more, what if you are an online advertiser with great detail about how consumers browse for information before they buy, but with little or no insight into what they actually do once they leave your search engine to hop in the car and go shopping? What if you’d like to know more about where they shop today so you can do a better job of advertising propositions from your clients to those consumers? What’s more, what if there were a way to deliver a value proposition from a retailer who advertises in your search engine to that consumer’s mobile device, perhaps even on a platform you as an advertiser have built and manage? And, perhaps most importantly, what if you have found a way to partner with a payments processor to have that consumer register interest, intent, and — most importantly — a payment product to prove a transaction and sale when the marketing message delivered to motivate purchase behavior from that consumer finally rings true at the cash register?

In next week’s course, we’ll discuss how that very paradigm — tied increasingly to mobile device delivery of pre-purchase offer and post-purchase reinforcement messages — may be changing the business of advertising and marketing, transforming the revenue opportunity for payments businesses in the process. For now, however, let’s discuss the following:

LESSON 3 DISCUSSION QUESTION: What application represents the greatest opportunity to use transaction data for marketing purposes in payments processing? Why? Click here to respond.

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