The card brands' digital dilemma: Why the Mastercard-Google deal is just the beginning
While the card networks have greatly benefited by the global boom in e-commerce, they are confronted with the corresponding growth in digital advertising. This will increasingly lead them to seek out data-sharing deals like Mastercard's reported arrangement with Google, which could prove vital to the networks' future survival.
Just as fundamentally, this environment could — and their shifting role from payment network to marketing data trove — could force the card networks to change their views on privacy laws. Or at least, it could force them to get very creative in how stay in compliance while sharing data.
As global retail commerce goes digital, merchants and manufacturers have responded by shifting their advertising dollars to online and mobile channels. These digital ads deliver both immediate sales, as well as delayed sales by consumers visiting physical stores to make an in-person purchase. While digital sales are easy to track, it’s the offline (in-store) sales that are difficult to attribute to digital ads.
“It’s the holy grail to be able to link online activity to offline, physical store purchases,” said Richard Crone, principal of Crone Consulting. This is also where the card networks have an advantage since they facilitate purchases in both digital and physical channels.
While the networks have been actively trying to leverage their data for a number of years, the focus has been on delivering topline trends and insights. American Express launched its Business Insights group in the U.S. in 2009 and then expanded to the U.K. in 2011, claiming it was going to unleash the power of the transaction data of its 90 million global cardholders. Mastercard followed suit in 2010 with the launch of its own Mastercard Advisors Merchant Solutions, touting its treasure trove of 340 million credit and debit cards in the U.S.
The recent story about the Mastercard-Google data sharing agreement is emblematic of how far some of the networks are trying to go in using the data, while also respecting the privacy of their individual cardholders.
Mastercard has not confirmed its participation in Google's sales measurement program, though the card brand said its ability to collect or share transaction data is limited by how its network operates. "We see the retailer’s name and the total amount of the consumer’s purchase, but not specific items," Seth Eisen, senior vice president of communications as Mastercard, said last week.
Visa said it doesn't have any such data-sharing deal with Google, and also set boundaries on the type of data it can collect and share.
“Visa does not share individual transaction data with search engines or advertising platforms. In some cases, we provide insights based on aggregated and anonymized data to help our merchant clients better communicate with their customers. We also may provide data to deliver customer rewards or offers with customer consent,” said Amanda Pires, vice president of communications at Visa.
American Express also does not share transaction-level data with Google or other third parties.
"American Express is not a participant in this specific deal. Per our privacy notice, we have not and currently do not share our card members’ personal information or individual transaction data with non-affiliates for their own marketing purposes, without customer consent," said Jocelyn Seidenfeld, director of public affairs at American Express.
While trends and insights may be helpful to digital advertisers, the card networks must still close the gap, or else be overshadowed by other companies trying to sell their own solutions to meet this need. The major credit bureaus collect data and resell it in some form, including insights. There are specialist firms such as Datalogix, Acxiom and Epsilon Abacus that also have access to sales data, and even transaction data, and are actively selling to the major internet advertisers as well as Google and Facebook.
According to a recent report by the Interactive Advertising Bureau, internet advertising exceeded TV advertising for the first time in 2016. Digital ad spending grew by over 21% in 2017, to exceed $88 billion, compared to TV ad spend which declined by 2.6% to $70 billion in the same period. In fact, digital advertising has grown by double digit percentages every year since the report began in 2003, with the exception of 2009, a recession year which saw a 3% decline.
The key challenge in all types of advertising is to determine its ROI, and thus decide if a particular medium warrants further investment. Advertisers try to make this determination by typically using soft measures such as cost per impressions (CPM), viewership, Nielsen ratings, etc., since it is difficult to measure sales generated from TV, radio and print ads.
However, in digital ads, advertisers have the ability to measure sales by the consumers who clicked on the ad before making a purchase.This has led digital advertisers to increasingly sell performance-based ads over impression (CPM)-based ads.
In 2005, the CPM-pricing model of selling digital ads had a slight lead. By 2007, the growing trend toward performance-based digital ads had emerged as the primary pricing model for the industry, holding almost two-thirds of digital ad spend, according to the Interactive Advertising Bureau. Since how much the digital ad pays is based on how much it sells, the companies selling the ads have a deep interest in trying to attribute offline sales to online ads.
An important factor in the equation is that digital advertising is largely controlled by a handful of companies. The top 10 controlled almost three-quarters of digital ad revenue in 2017, according to Interactive Advertising Bureau. The next 15 companies controlled 8%, leaving all others with the remaining 18%.
Therefore, the leading sellers of digital ads have a very strong interest in attributing offline sales to online ads.
While the networks, search engines and social media companies all have some form of opting out of their data being shared and advertising being shown to consumers, it may not go far enough.
“Note that in Europe this opt out scenario is insufficient, the user needs to opt in and be told exactly what they are opting into and who will receive the data," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.