Financial Institutions’ approach against Groupon

Groupon is a popular website that offers gift coupons which can be used at local and national companies. Established in November, 2008 with initial promotions based at Chicago, spread to many more cities and countries worldwide. At present, it has its presence in 4 continents with more than 35 million registered users with unprecedented growth in any business ever. Except LivingSocial, the company is not facing any major competitors so far.

There is a natural tendency from commercial establishments especially financial institutions like banks and credit card agencies to follow the suit of Groupon. Not in its totality, but in some way financial institutions are prompted to utilize their large customer database, especially credit card holders’ database and spending habits. As per the existing rules and regulations, these establishments cannot share user details with third parties as they need to uphold the privacy of their customers. On the other hand, they seem to have a free hand in leveraging the spending habits of customers to merchants. Banks and credit card issuing companies have information of customers like, where they purchase, what they purchase and when they purchase and how frequently they will purchase. This is a wealth of information that banks wants to cash on to generate additional revenue for them.

Chicago Tribune reports, “Many of the nation’s leading banks and card issuers, including Wells Fargo, Citi, USAA, Sovereign Bank and Discover, are selling information about consumers’ shopping habits - how much they spend, where they shop and what they buy - to retailers.” The above report is corrected by CNN Money stating that Banks don’t sell customer habits, but rather promote their shopping habits in a different way (like Facebook promotion) while maintaining customer’s privacy. Financial Institutions do not reveal customers data or habits to merchants. Deals offered by merchants will enter the bank network. Those deals will be conveyed to customers who are already having such spending history through credit card or debit card purchase. And, when a customer opts for a deal, the bank gets commission. In this way, user data is not leaked from the bank network, rather Bank uses the customer data in an intelligent way to promote merchant’s deals.

As per the existing rules, banks can take the advantage of automatic opt-in to merchant incentive programs. At the same time, customers have the freedom to opt-out from the program at any time. Wells Fargo and Citi customers might have already noticed this feature. USAA objects that it was inaccurately mentioned in the Chicago Tribune story. USAA clarified that it will not sell user’s personal information to outside companies. Instead, it has a merchant funded rewards program with a full-fledged online shopping mall (offering different kind of discounts). It states that discounts are not offered based on past spending habits of users and user information is not revealed at any cost.

As long as banks protects the interests of millions of users by upholding their privacy, deals will not harm customers. It’s altogether a different question about whether these financial institutions place customer loyalty above probable profits.

What do you think?