I do apologize for a rather late post on this topic. I do have to respect my clients NDA obligations on the work I perform. I have picked up some direct slides/pictures from my past work in this post to talk about this topic – of course, with their kind approvals 

CLOs (Card Linked Offers) have been around for quite some time now – since around 2009. As the name suggests, the concept revolves around offers based on credit/debit/prepaid cards and their usage. It is a transaction-based marketing program. The program- with a well crafted model – delivers immense benefits to the consumers, merchants and the banks.

• Consumers love coupons and savings – what if they don’t have to search, clip, print, save and use it at the right place  - to avail the benefits? This is what a CLO does. Once you register your card with a CLO program, everything is automatic!
• Merchants love precise targeting of customers. They love loyal customers. They love to attract new customers. Yes – all this is possible with a CLO program. What if you throw in pay-for-performancepricing for joining this marketing program? It is nothing less than heaven!!
• Banks need engagement with their customers. They need their customers to think of them not as just a money-storage machine, but as a partner – helping them save more money and earn more rewards. They also need to think of new revenue channels and increase their revenues from their card programs and DDAs. Don’t they need a way to recover from Durbin’s debit interchange blow. The CLO is one of the great ways to achieve this.

CLO – Value chain

Marketing and Advertising always has been a shoot-in-the-dark for the merchants and advertisers. The CLO has been a precise targeting machine – that can deliver offers to consumers at the right place and the right time. With no changes to the POS systems or no training to the storefront and cashier functions.

I will get into the details of the CLO mechanics, integrations and operational details at a different time, but in this post, I would like to just give a perspective on some of the leading CLO programs and how they are operating in the payment ecosystem.

You might have heard about several CLO players – Cardlytics, Cartera, CardSpring, edo Interactive to name a few. These innovative companies have injected their solutions at various places in the payment ecosystem to deliver the CLO solutions. They have partnered/been acquired/sold their products and services to the payment ecosystem incumbents. The below diagram shows some of those associations.

Card-Linked Offer solutions offered in the Payment ecosystem

As you can see in the diagram above, the CLO-startups have associated themselves with either the processors, payment networks or FIs.

• CardSpring (start up)has partnered with First Data(acquiring processor) to deliver Offerwise to FIs and Merchants
• Cardlytics (start up)  has positioned itself as a rewards/loyalty program solution and delivers its solutions through Bank of America, PNC bank and other banks.
• edo Interactive (start up)  provides its solutions through issuer banks such as Fifth-third and Ally bank
• Cartera (start up) powers the CLO solutions of Wells Fargo and other banks
• Fiserv(Fin Tech solution provider) has created a program called uChooseRewards and offers through several credit unions and small banks
• Truaxis (formerly Billshrink) was picked up by Mastercard in Sep 2012. Truaxis works with TSYS and few other FIs to deliver its BillShrink product.
• Amex (bank, payment network)  is in a unique position with this 3-party model where it has complete control with its merchant acquiring, card issuing and transaction processing functions.  It has been using several social networking tools to deliver CLO and more such marketing programs. Its “Go Social” and “Link, Like, Love” programs have been very interesting.
• Mastercard (payment network) announced its Open platform API couple of years back ad Offers have been an important part of  that API strategy. Even though it is still in its Beta stage, it is in a perfect position to act as a CLO platform provider as it any way links the banks, merchants and the consumers. With its Truaxis acquisition, it can come up with more interesting programs.
• Visa (payment network) seems to be a laggard on this front. It has a Visa Offers program listed on its website but is still in the beta stage. Its Real-Time-Messaging (RTM) platform delivers a merchant-specific program (adopted by few merchants like GAP) but does not come close to a full fledged CLO solution. With its leadership position in the card market, one might have thought that Visa should have been a the fore-front of this CLO solution, but it has a long way to go to!

Critical Success Factors

There are different business models of the CLO programs in the above-mix.  Just like in any new program in a multi-platform environment,  care has to be taken to ensure that all the parties receive sustained benefits. For the CLO program to get into a positive spiral cycle, the following aspects should be carefully watched.

1. Quality of offers enough to tick the consumer

2. Quick ROI for the merchant. (Merchant’s offer spend should exceed profits due to increased sales at a minimum)

3. Increased card usage for the bank leading to increased interchange revenues

Who is positioned to win in the CLO game?

• Where the CLO programs are delivered by new players (such as Cardlytics, Cartera, etc),  that there is an additional mouth to feed in the CLO value chain. A part of merchant investment gets lost before it reaches the consumer – potentially reducing the effectiveness of the offers.
• In the case of payment networks (such as Visa, Amex and Mastercard) running the CLO programs, they need not necessarily charge the merchant for the CLO platform. If the CLO system results in increased card usage, that by itself will get the additional revenues. In which case, most of the merchant investment can reach the consumer.
• As mentioned above, Amex has further advantage from its 3-party model and has the potential to create a very successful CLO program. Visa and MC also have opportunities to add a great value to its customers (issuers, merchants and cardholders) by an effective CLO program without charging anything additional. A great set of free “Offers APIs” can create effective CLO systems that can outrun any other CLO program.
• The new players indeed have an advantage in terms of better innovation, creativity and agility. With more advances in data analytics, cloud and mobility technologies, these start up companies do outweigh the networks.
• Fiserv is capitalizing on the current vacuum of cheap CLO solutions and has positioned to address the credit unions and smaller banks with its UChooseRewards product.

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