The Potential for Card Linked Offers in Europe

Navigator Edition: September 2015
By: Chris Dickey and Erik Howell

Card-linked offers (CLOs) have existed for several years in various forms, but have recently become more prominent in Europe as a way to create new revenue streams in the face of interchange regulation. While CLOs have not generated significant revenue for issuers to date, they are an important and significant step forward in the broader commercialization of payment platforms.

The ability to deliver CLOs is a technical solution that enables automatic redemption of offers via card payment, typically by linking the offers platform to the card issuer’s back-end system such that offers are recognized as a statement credit. [Note that there are variations on this use case and also merchant- or acquirer-facing implementations of CLOs, but this article focuses on issuer implementations.] With this technology, customers do not need to present a coupon to redeem an offer; they simply need to pay with the card which was previously linked to the offer. This technical solution for redemption generally works well. More often the challenge comes from the other necessary components of the proposition – namely developing the merchant/advertising network and the analytical capabilities necessary to serve targeted offers. CLO offers are frequently served from online or mobile banking, so cardholders are typically presented with offers while not actually shopping.

Example: Lloyds Bank Everyday Offers (U.K.)


Example: NatWest Cashback Plus (U.K.) NatWest-Cashback-Plus

Example: NatWest Cashback Plus (U.K.)

BarclayCard-Bespoke-OffersSource: Company websites.

The business case for CLOs is typically three-fold:

  1. To reduce rewards program expenses via replacing or complementing traditional issuer-funded rewards with merchant-funded rewards;
  2. To differentiate card and current account products; and,
  3. To generate revenue from new revenue streams such as charging merchants for redeemed offers.

While the revenue potential for CLOs is significant (as demonstrated by several Turkish banks), results in Western Europe and North America to date have been underwhelming. In the U.S., issuers such as Bank of America, American Express, Capital One were quick to embrace CLOs, but there is little evidence of CLOs gaining significant traction, and some programs (e.g., Capital One’s) have been withdrawn.

The lack of significant penetration in the U.S. has put a damper on expectations for CLOs in Europe, where issuers are seeking to find ways to plug a €5 billion – €6 billion annual revenue gap resulting from European Union interchange regulation which will be effective in December 2015. Efforts to date in Western Europe include Edo Interactive’s partnership with Visa Europe in 2014 (which does not appear to have generated live programs to date), Lloyds Banking Group’s Everyday Offers powered by Cardlytics, RBS and NatWest’s Cashback Plus and BarclayCard’s Bespoke Offers powered by Reward Insight, Wüstenrot Bank’s program powered by RedZebra, and Banque Casino’s program powered by Plebicom.

Several factors have limited the success of CLOs in Europe and North America to date, including:

  1. A decoupled offer acceptance and redemption process (and therefore low rates of recurring usage);
  2. Shallow offers pool lacking flagship merchants or high degrees of localization;
    Minimal targeting;
  3. Low visibility (current CLO models requires customers to regularly check their online or mobile banking, rather than a “push” model”); and,
  4. Lack of integration with social networks, mobile wallets/apps, and other popular technologies.

In order to realize the potential opportunity presented by CLOs, issuers will need to focus on:

  1. Developing a single process for offer acceptance and redemption and enabling an effortless user experience (push them an offer, “just say yes”) via mobile technologies;
  2. Improving the relevance of offers (e.g., location-based targeting, integration with social networks, better analytics to present more individualized offers, etc.); and,
  3. Developing a deeper merchant network and the capacity and capabilities to serve this network (analytics tools, etc.).

For many issuers, this will require partnerships with advertisers, merchants, and technical vendors. There are currently several technical vendors that can enable CLO for issuers (see above) with a focus to-date on the U.S., U.K., French, and German markets.

Ultimately, CLOs will likely be a stepping stone to more robust offer propositions and data commercialization business models in the future that are real-time, mobile, rich, and targeted (see Figure 1). This is not to say that issuers should wait and see; however, as it is advisable to begin the journey along the learning curve now to prepare for a more lucrative future. The level of competition from social media and mobile powerhouses such as Facebook and Google will intensify and leading financial institutions would be wise to carve out partnerships and operating models which position for the future, even if today’s investments face long-term and uncertain returns.

Figure 1: Evolution of Data Monetization

Fig-1_-Evolution-of-Data-MonetizationSource: First Annapolis Consulting research and analysis.

For more information, please contact Erik Howell, Senior Manager,; or Chris Dickey, Consultant, Both specialize in Credit Card Issuing.

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