Card networks have built their legacy on transporting payments and consumer data, and over time the data itself has become far more complex.
MasterCard pushed to take advantage of this trend when announcing its intention to acquire Applied Predictive Technologies in a $600 million deal expected to close next month. The deal signals a new era in which traditional card networks provide more non-payment services to business clients.
How MasterCard or any other network with such business analytics at its disposal can boost transaction volume may become clearer over time. For now, it is a value-add service to network clients.
MasterCard will not get into specifics about the APT acquisition until the deal officially closes. APT will become part of the card brand's advisors business, which "delivers value beyond the basic payment functionality through our analytics and insight," MasterCard spokesman Seth Eisen said.
By providing a deeper analysis of a company's data, MasterCard is able to spot important trends and also compare these findings against competitors, Eisen said. Even though MasterCard notes any data analyzed will be anonymous to APT, it is common for networks to use available data when consulting with merchants about forming loyalty programs or special deals.
Discover Financial Services acknowledges that asset when working with merchants.
"Business advisory and consultancy is a core part of Discover's merchant relationships, and has been for some time," said Brian Meier, director of rewards marketing for Discover. "The Discover Deals program uses our insights for consulting, as well as taking marketing action with it, driving very beneficial results for our partners."
Bundling more value around payments for issuers, acquirers and merchants with data analytics can help a network differentiate itself from competitors, said Eric Grover, payments industry consultant at Intrepid Ventures.
Ultimately, simply selling analytics work to other businesses might not be enough, Grover said. "If MasterCard made a push for incorporated MasterCard products to generate more sales and more co-branded products, there is some real value there."
Being able to deliver powerful data analytics, common in closed-loop networks, into an open network would be a compelling scenario for MasterCard or any other network, Grover said.
But with new data comes new challenges.
The U.S. Securities and Exchange Commission plays the Big Brother role when certain merchant data becomes available. Earlier this year, the SEC sued two former Capital One data analysts for insider trading, alleging they had used non-public data to trade in consumer retail companies' shares before earnings and sales reports were issued because data at their disposal warned them that dismal reports were looming.
MasterCard has built its track record through a commitment to consumer privacy, spokesman Eisen said. "To us, data isn't just bits and bytes, it's personal," Eisen added. "We don't have, use or need consumer private information in any of our Advisors products by design."
Even though SEC violations regarding insider information from card networks or issuers are not rampant, the Capital One case illustrates the type of powerful data available to the networks, said Angela Angelovska-Wilson, a financial services and banking lawyer at Reed Smith LLP.
MasterCard Advisors has been at the forefront of collecting and using data to help clients, and card networks tend to have "the richest data sets out there," Angelovska-Wilson said.
In addition, Applied Predictive Technologies has been in the data analysis business a long time and has built a great reputation, Angelovska-Wilson added.
Still, as MasterCard and its competitors look to dive deeper into the data analytics world, their legal teams will likely remind them that there is a "very thin line about what they can do with that data and how they engage customers with it," Angelovska-Wilson said. "It's a rich data path, and that will be the challenge for everybody."