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Credit cards may be the currency of the Internet, but it has only been recently that Internet retailers are discovering a perennial gold mine of incremental sales and increased customer loyalty by forming marketing partnerships with credit card issuers.
As marketing-driven companies whose profits are tied to how much their cardholders spend, credit card issuers have a history of delivering incremental sales to retailers in the physical world through joint marketing ventures. Now they are seeking the same goal in the online world. Hence, they are aggressively maneuvering to establish their web sites ahead of Internet portals, such as Yahoo and MSNBC.com, as the primary gateways to Internet shopping for their own customers.
To accomplish this feat, credit card issuers are employing a two-pronged strategy built around partnerships with Internet retailers that not only deliver special incentives to their cardholders but that also provide cardholders with a high level of convenience and security.
In November, Riverwoods, Ill.-based Discover Financial Services, the fourth largest credit card issuer, became the latest heavyweight to flex its muscle in this game of high stakes poker. That’s when Discover unveiled DESKSHOP 2.0, an Internet shopping service that provides online retailers access to Discover cardholders by offering incentives ranging from discounts and free shipping to Discover’s trademark cash-back bonus.
DESKSHOP also offers cardholders the ability to create a single-use credit card number when making an online purchase for protection against fraud and an e-wallet service that automatically supplies the account number and shipping address in the checkout lane for greater convenience.
Down the mineshaft
Discover, which had signed about 70 Internet retailers to participate in the service prior to launch, joins a growing roster of card industry powerhouses following similar strategies. Those include Citibank, the largest issuer of general-purpose credit cards, MBNA America and American Express Co. Joining that group of biggies are Internet card specialists NextCard and Aria, which is issued by Providian Financial Corp. Besides increasing charge volume on their cards, the bank card issuers receive an added benefit in the form of higher interchange-the percent of a transaction that a merchant bank pays to an issuing bank and that is set by MasterCard and Visa. Online transactions pay about 50 basis points more than traditional transactions. Even MasterCard International and Visa U.S.A., the marketing associations which manage their respective brands for the banks that issue MasterCard and Visa cards, are in the game.
American Express, which has a long history of striking marketing relationships with retailers in the physical world, is aggressively promoting its online shopping mall, known as the Offer Zone. AmEx touted Offer Zone during Q4 of 2000 via radio commercials and mailed a booklet to cardholders containing special offers from Internet retailers participating in the offer zone. The booklet also provided hints on safely shopping online.
Offers vary by what the merchant is willing to underwrite and range from free shipping and discounts to special tie-ins for AmEx’s Membership Rewards program. AmEx also offers a search engine through its web site so consumers can go comparison-shopping. “We want to be the launch pad for our card members when they want to shop online,” says an AmEx spokesperson. “We want to deliver the same shopping value in the world of online retailing as we do in the world of brick-and-mortar retailing.”
The presence of such big hitters in e-commerce is providing Internet retailers with an infusion of marketing power that can help them cultivate both new and repeat customers. “Companies like American Express, MasterCard and Visa have strong brands that can help us reach customers and send the message that we have the resources to deliver value,” says Peter Cobb, co-founder and vice president of marketing for eBags.com, which has marketing partnerships with AmEx and Visa. “As more consumers shop online, they are going to sites through which they feel comfortable starting their journey and credit card issuers’ sites are one of those homes.”
The ability to reach new customers is only the tip of the iceberg. Since credit card issuers record their customers’ transactions for monthly billing statements, they possess a wealth of data that Internet retailers can tap to create customized offers targeted around individual cardholder purchasing habits.
NextCard has taken a leadership role on this front with the creation of its e-commerce index. Published monthly, the index details the leading sites at which its 577,000 cardholders made a transaction the previous month. The index, which is about 20 months old, is available through NextCard’s web site.
“Merchants use the index as a barometer of how they are doing,” says Lisa Subramanian, vice president of e-commerce for NextCard. “We thought this would be a benefit to the industry. Purchasing activity is key for Internet merchants and us.”
That is an understatement, especially since few credit card issuers are known to be supplying that type of data to Internet retailers for marketing purposes. “The NextCard index is a powerful tool,” declares Paul Jamieson, senior analyst, banking and payment services for Gomez Advisors Inc. of Lincoln, Mass., which tracks the 17 largest card issuers with an online presence. “Card issuers have a wealth of transaction data but that tool is being underutilized for online shopping.”
One of the potential uses of cardholder transaction data for Internet retailers is to create e-mail marketing campaigns targeted at cardholders who are active online shoppers, but who are not customers of their site, theorizes Jamieson.
The consumer in control
While some credit card issuers are getting their feet wet when it comes to using cardholder transaction data to craft special offers with Internet retailers, some are instead gathering cardholder shopping preferences to achieve the same goal.
MasterCard’s Preferences program is one example. MasterCard cardholders register at MasterCard.com. They record the types of merchandise they are interested in purchasing online, their email address and how often they wish to receive special offers from Internet retailers geared to their preferences. Subsequent email campaigns built around that data typically include a link to an Internet retailer carrying the merchandise being promoted.