There are now several companies offering merchant-funded rewards programs that could help banks compensate for the loss of payment card revenue to tightening regulation. Only one has a name that's almost certain to grab consumers' attention: FreeMonee.
The startup, set to unveil its service Wednesday, promises to generate more spending on bank clients' cards by streamlining the merchant-paid loyalty model.
Like its rivals, the San Mateo, Calif., company links retail offers to consumers' existing credit or debit cards. But instead of offering a specific amount off a future purchase or requiring a cardholder to spend a minimum amount, FreeMonee Network Inc. allows retailers to offer a bank's customers a sort of virtual gift card with few strings attached.
"When I say you can have $20 to spend anywhere you want in my retail shop, I'm making a bet that you're going to be valuable to me beyond that $20," said Mike Linton, FreeMonee's executive vice president of marketing.
The bank and FreeMonee share a fee when a cardholder redeems at least a portion of the gift amount.
"It is viewed as a potential … replacement source for significant lost income," said Jim Taschetta, the chief marketing officer of FreeMonee. At bank clients, "we've moved up the priority list versus other projects because they are all thinking about 'How do I get ahead of this lost-income issue?' "
Two of the largest card issuers in the U.S. have agreed to offer the service to their customers, with the first test set to begin this summer. Taschetta said he could not identify the banks because they have asked to remain anonymous. Forty merchants have agreed to fund gifts through the system, said Taschetta, who has worked in marketing for companies including Visa Inc. and the personal financial management software company Yodlee Inc.
FreeMonee's use of gifts instead of a virtual coupon or discount could resonate well with consumers. But the San Mateo, Calif., company faces fierce competition from companies whose merchant-funded offer systems are in use by many banks today, including Cardlytics Inc., Cartera Commerce Inc. and edo Interactive Inc.
Many already link the offers to existing cards. For consumers to redeem an offer — or a gift in FreeMonee's case — they simply swipe the associated card at the participating retailer, triggering a statement credit.
Many, including FreeMonee, also use a cardholder's transaction history to help merchants target their offers to consumers who are most likely to respond, layering different data points to augment the capability.
"When you peel back the onion with all of these companies the way they're proposing the offers, the types of offers themselves and the way they're analyzing the data and what data they're analyzing is all a little bit different," said Madeline Aufseeser, a senior analyst who studies debit card issuing and loyalty programs for Aite Group LLC.
The services have generated more interest in light of the Federal Reserve Board's proposed caps on interchange fees that banks earn from debit card purchases.
FreeMonee's executives say they are confident in their chances for success because of their background in payments and technology. Gadi Maier, the chief executive and president, worked at Oracle Corp. and Cisco Systems Inc. Joe Salesky, FreeMonee's chief strategy officer, most recently was the CEO of the mobile banking vendor ClairMail Inc.
FreeMonee's software matches cardholders with criteria established by participating merchants. "For example, if I'm a restaurant I can find people who spend a lot on restaurants on their cards," Linton said.
While merchants are funding the gift amounts and paying fees for each sale those gifts prompt, research shows that consumers often spend more than the amount of their gift cards, said Linton, formerly the chief marketing officer at eBay Inc. and Best Buy Co. Inc.
Companies like FreeMonee face privacy concerns both from banks evaluating their services and consumer advocates because of their use of transaction data. FreeMonee executives, like some of their competitors, say they never see customer data because portions of its technology are housed inside of the banks' firewalls and the transaction data never leaves the bank. Furthermore, FreeMonee's system uses a code to identify a cardholder rather than the name or card number, Taschetta said.
The use of transaction data could be a nonstarter for some consumers but would likely make little difference to others, said Nick Holland, a senior analyst with the Yankee Group research firm.
"I think people are used to trading off privacy for cheaper goods already," Holland said. "I think that is less of an issue and the ones that want to remain private will opt out."
