Reinventing the Coupon Program for Mobile Payments

Pressure is building on financial services providers to develop more merchant-centric loyalty programs to fight declining interchange revenue, and U.S. Bank is testing one approach in Lawrence, Kan.

The bank's Deal Local app, a proprietary system developed with its Elavon merchant processing subsidiary, operates a bit like a card-linked offers platform for local businesses. In the Kansas pilot, U.S. Bank has signed up 23 businesses that already use Elavon for its processing services to provide offers through Deal Local via Fanfare, the loyalty platform Elavon launched in 2014.

U.S. Bank joins countless other companies that have invested heavily in the search for a winning formula that combines the power of the mobile channel with merchant-funded deals to replace clunky paper-based coupons and store loyalty programs.

Success with these efforts has been elusive, as developers face the perennial challenge of trying to build scale while keeping up with fast-moving changes in the mobile payments landscape. Some efforts, like the early mobile wallet Bling Nation, failed abruptly; others, like the Merchant Customer Exchange's CurrentC, have lingered in development for years. LevelUp has persisted in the market but changed its pricing model several times to appease merchants.

These earlier efforts do provide valuable lessons for newer programs. Bling Nation, for example, learned the hard way that it could not dictate to merchants what their loyalty programs should be.

U.S. Bank’s biggest challenge with Deal Local will be the friction in its process and steps required by consumers to capture deals.

“Obviously this is a pilot, but they’ll need to work out the kinks and make sure there are enough fresh and relevant deals to make consumers pay attention. But experimenting in a sandbox like this is going to be very important for banks as they look to keep up with evolving new models for merchant loyalty and rewards,” said Brian Riley, principal executive adviser with CEB TowerGroup.

U.S. Bank has an advantage in signing up businesses through its existing portfolio of Elavon customers, enabling it to work with merchants that are already receptive to enhancing their relationship with the bank.

“Getting into the trenches with local merchants is exactly where banks and processors should want to be,” Riley said.

Business that are already Elavon processing customers need only sign a separate agreement to participate in the pilot, and there is no separate point of sale integration required, a U.S. Bank spokesperson said.

U.S. Bank is not charging any fees to merchants during the pilot, which is slated to run for six months, the spokesperson said.

During the pilot, Deal Local's offers include 25% off at LOL Family Zone, a Lawrence-based indoor playground, and 50% off the fifth visit to Daylight Espresso Café in nearby Baldwin City, Kan.

Consumers participate by downloading the app and enrolling a credit or debit card or their mobile phone number to identify them as Deal Local subscribers. Significantly, the app does not yet support in-app or mobile payments.

Users scroll through a list of participating businesses, and they must click on each to enroll and receive offers.

To redeem offers, users present their payment card at the point of sale, and the offer is displayed on the payment terminal. Alternatively, users can give their mobile phone number to the clerk to retrieve the details of the offer they chose.