On Capital One's Drawing Board: Data Tools for Small Businesses

A list of Capital One's relatively newer acquisitions could read like a how-to guide for bankers who want to strengthen digital services and gain engineering talent.

ING Direct. Check.

Bankons, a mobile startup that creates geo-located offers. Check.

Bundle, a spinoff from Citi that develops software that analyzes spending data. Check

VeriFone's mobile point-of-sale card-swiping device, Sail. Check.

"Capital One has been making a big push into digital and becoming a great digital company," says Brian Hamilton, Capital One's senior vice president of national small business and digital platforms. "The cultural revolution is manifesting itself in a number of ways."

The small business market, destined for digital enhancements in a smartphone era, has increasingly attracted developers' attention. Capital One is among the companies vying for the market via a dongle (a small card-swiping device that can be plugged into a smartphone) and data-driven services under its business line Spark.

The bank's mobile card reader, quietly launched in 2013 and now called Spark Pay, lets merchants — and recently, Girl Scouts — accept payments on mobile devices the way many similar dongles that followed in Square's footsteps do, including Bank of America's Mobile Pay on Demand and BBVA Compass's Business Mobility Bundle.

More interestingly, the Spark Pay reader integrates with a mobile and web app stocked with features — some in pilot — designed to help the busy business owner execute tasks quickly and access associated analytics. Custom receipts, offers, inventory management tools and sales report analysis are among the platform's existing services.

"We are focused on building out a compelling suite for small businesses," Hamilton says.

One focus is on creating offers, a tool retailers use to inspire people to shop more at their stores.

Spark Pay merchants can already create and distribute offers using the Spark Pay web app for social media sites, email lists and other methods thanks to the bank's partnership with San Francisco startup PushPoint. And soon, users will also be able to send deals to nearby shoppers' smartphones, a capability Capital One teased at a trade show held in the fall.

The proximity feature, intended for use in dense population areas, lets a merchant advertise his offers on nearby consumers' mobile ad-supported web pages for a fee. (Separately, Capital One displays anonymized transaction data on a heat map to give the merchant a sense of where and when consumers are buying things.)

The bank is hammering out the pricing model for paid media ads, but the use-case vision is defined: Looking to drive customers into its doors, a doughnut merchant creates an offer for a free coffee with a desert and purchases ad impressions for the deal to appear on smartphones within a certain so-called geofence of his store. The power of suggestion (coupon) and proximity to the user could inspire the stroller to enter the shop. Then, the shopper would claim the discount by scanning a QR code flashing on his smartphone screen, and in turn, provide the merchant a data nugget to crunch to ascertain a campaign's results. The feature is the digital equivalent of a special advertised on a storefront window, but observed from greater distances and with results made available to the business owner.

To be sure, consumers are tired of having digital offers spit at them — even Hamilton. "I turned off Groupon a long time ago," he says.

In the Capital One model, however, Hamilton points out that the inevitable ad-supported mobile page might as well pitch a person nearby small business offers. Then consumers could opt out of other distribution methods like email, for example.

The location-based advertising tool is still in a test-and-learn stage. Capital One, like many other companies, is exploring varied ways to pitch deals to mobile consumers to get a sense of what works best.

Separately, Capital One appears to have terminated one of its merchant-funded deal programs to some credit card customers. Capital One sent certain cardholders an email late January that alerted them to the bank discontinuing the program, which was called Deals.

"As of February 2014, we are discontinuing this program to focus on exciting new features for your card," read the email.

The Deals program sent customers discounts at merchant partners. A cardholder might receive an email with a coupon for Red Robin that requires redemption by a certain date and a certain amount spent, for example.

"We are looking forward to applying key learnings from our Deals program to new card benefits we are currently testing," Capital One said in an email statement to American Banker. "These new programs will take the card experience for our customers to new heights."

Further details were not provided by deadline.

Certainly, rethinking the way offers are delivered to consumers — and gaining more data in exchange for doing so — is on many businesses' to-do lists.

What sets Spark Pay offers apart from other products available to small businesses, according to Hamilton, is that end users do not have to download a particular app to view the deals; thus, reducing an area of friction. Not to mention the other — and growing — services the app includes, such as inventory management features made available from a partnership with startup Stitch Labs, and arguably most important, direct connections to a bank. "A financial institution can deliver more than a standard micro-merchant system," Hamilton says.

As it fine-tunes the customer experience within its current pilots, Capital One is positioning itself to extend its geo-location feature and other services to small businesses in 2014. "It's only one example of the value-added services we want to deliver," says Hamilton. "The top priority is to expand our suite of services [this] year."