Are Card-linked Offers the solution to a decreasing interchange? (Part 3)

03 November 2015

Part 1 of this post focused on the context for emerging card-linked offers and their definitions.

Part 2 of this post looked at the analytical and sourcing capabilities that card-linked offer solutions should bring to the market.

Part 3 below throws light on the business model related to Card-linked offers / card-linked promotions solutions.

The card-linked offers business model is best understood by looking at the three main steps of the life cycle of an offer: sourcing, aggregation and publishing. Those steps involve three main actors: a sourcer, an aggregator and a publisher that are collectively responsible of delivering a merchant-funded offer to a banking cardholder.

Sourcing of offers

Sourcing of offers consists of a first actor called sourcer recruiting various merchants and negotiating directly with them their financial participation.

  • For example, a merchant agrees to provide a 20% funding for any spend of 100 Euros in return for first time visit or repeat visits from banking cardholders

Aggregation of offers

The next actor, the aggregator is in charge of transforming the funding provided by merchants into concrete offers for banking cardholders.

The aggregator split the merchant initial funding into the various commissions agreed between the sourcer, the aggregator and the publisher.  Indeed, merchants do not fund what the final banking cardholder will benefit from. Instead, they indicate their financial participation that is later split between the intermediate actors and the final customers.

The aggregator also formalizes the final offer into the correct customer discount or loyalty currency, knowing the final generosity offered to the banking cardholders, the targeting of various segments and the format of the offer in cash back, discount or points.

  • For example, the aggregator first acknowledges that a 20% merchant-funded offer translates into a 4% commission for the sourcer, a 4% commission for the aggregator and a 2% commission for the publisher. The remaining amount is formatted as a 10% cash back or a value of 1000 points available to the banking cardholder in exchange of a purchase of 100 Euros.

Publishing of offers

A final third actor, the publisher has the responsibility of communicating consistently across multiple channels the availability of offers to a base of end-users.

  • For example, a bank who acts as a publisher communicates the offers to their banking cardholders via newsletters (email marketing), notifications or geo-localised push (bank’s mobile app) and even bank’s online statements.

Often, the same actor performs multiple roles in order to grab more commissions, for example being a sourcer + aggregator or an aggregator + publisher, even being a sourcer + aggregator + publisher.

The card-linked offers business model is similar to an affiliate model with merchants looking for partners who will transform their initial funding into final aggregated, segmented and published offers for cardholders, in exchange for a first time or repeat visit, an increase of ticket or basket size.

Part 4 will end this series of posts with insights on the key success factors to implement and run card-linked offers.