FreeMonee is working on a better way to get consumers' attention for merchant-funded debit card offers.

U.S. Bancorp has become the first major issuer to broadly roll out FreeMonee's merchant-funded rewards program, the bank announced April 12. Under FreeMonee, banks send special deals directly to participating consumers, who receive cash rewards that show up in their account when they pay with an enrolled card.

FreeMonee's system enables banks to base offers initially on the previous 12 months of participating consumers' purchase history, using transaction data that remains within the bank, a spokesperson for the company says.

"When consumers redeem offers, FreeMonee 'learns' their preferences and begins to send them targeted offers based on their overall purchasing behavior," she says.

Unlike certain other merchant-funded rewards programs that require consumers to troll through their bank's online banking website to find discounts, FreeMonee's system enables banks to send merchant offers directly to consumers via email, text or mobile app if they opt.

That more-direct connection may set it apart from other offerings, one analyst contends.

"This is a unique program, which is very simple and direct to consumers, requiring very few steps," Madeline Aufseeser, senior analyst with Aite Group, tells PaymentsSource.

Rival Cardlytics Inc., for example, makes merchant-funded offers available to consumers within banks' websites or mobile banking sites; consumers must make purchases through the enrolled account to receive discounts on merchandise that are applied as a credit.

And unlike Groupon's merchant-funded deals sent directly to consumers, FreeMonee requires far fewer steps to redeem the offer, Aufseeser says.

"It's a fairly simple and direct transaction," she says.

Another important difference is the way consumers receive rewards through FreeMonee.

So far, some 100 national and regional merchants are participating in the FreeMonee network, offering rewards that range from about $2 for low-balance transactions to $50, the firm says. Eligible purchases can be online or at the point of sale.

Merchants fund rewards when a consumer acts on an offer the bank sends them. FreeMonee charges merchants 5% to 10% of the total purchase price, regardless of the reward amount, and divides some of that revenue with the issuer, the firm's spokesperson tells PaymentsSource.

"This isn't a discount on merchandise, but it is an actual (cash) gift the accountholder receives in their account," Aufseeser notes.

San Mateo-based FreeMonee has been testing the program since November with four large banks, including U.S. Bank, the spokesperson says. She declines to disclose the others.

U.S. Bank initially is making FreeMonee available to select consumers via email. The company plans to expand the program soon, she says.

The key to success for FreeMonee may be its agility in target-marketing, Patricia Hewitt, a director at Mercator Advisory Group, tells PaymentsSource. 

"The secret is in how well FreeMonee is able to match an offer to a consumer," Hewitt says, noting that making the experience "frictionless" for cardholders will be crucial to its adoption.

Merchant-funded rewards programs over the past year have been gaining momentum and are poised for further growth and consolidation, Aufseeser says (see story).

A new Federal Reserve Board rule that cut debit interchange essentially in half beginning Oct. 1, as a result of the Durbin amendment, caused many banks to cut interchange-funded debit rewards programs (see story).

But the rise of merchant-funded rewards programs is not a direct result of Durbin, Aufseeser says.

"The growth we're seeing in merchant-funded rewards programs was already under way and is not coming directly from Durbin fallout,” Aufseeser says. “However, Durbin is giving traction to some of these programs."

And if banks find success with programs offering merchant-funded deals tailored more specifically to banks' customers preferences and that can be easily redeemed through mobile devices, it may foster competition from other providers.

"We are likely to see a lot more competition in this channel as things evolve," Aufseeser says.

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