Banks and Your Money

Did you know?

Banks and payment networks collect, buy, analyze and monetize consumer data to a very very DEEP degree! All done with the purpose to increase the bottom line. And this data includes both purchase data and demographic data gathered from card payments and other sources - products etc..

So just to give you an idea, every time you swipe, there is a server/database (and yes probably even just an excel sheet) that gets updated with the following information for the Bank

• Card details:

  • Card number

  • Expiration date

  • Cardholder name

  • CVV/CVC code (for credit cards)

• Transaction details:

  • Date and time of transaction

  • Location of the transaction (e.g. store name and address, or IP address for online transactions)

  • Amount of the transaction

  • Currency of the transaction

  • Description of the transaction (e.g. merchant name)

  • Transaction type (e.g. purchase, cash advance, etc.)

• Account details:

  • Bank name

  • Bank account number (or card number)

  • Routing number (for bank transfers)

• Cardholder details:

  • Billing address

  • Phone number

  • Email address (if provided by cardholder)

Now you might say one of 2 things - either ok I don’t care or yea I figured they captured data like this so what?

Well if you don’t care about what happens to your data, then umm I’m not sure what you're doing here.

Care about something man/woman!!

In any case

Not to alarm you, but this is pretty common practice - banks utilizing your card/transactional data to figure out how they can

• Profile you

• Monetize you (i.e. squeeze the most money out of you)

Let’s talk about how a Bank profiles you!

They utilize the data they collect via card transactional to get a good idea about who you are and where you stack up. Below are some of the various areas the Bank tries to figure out, based on your card data

• What type of customer are you?

  • Best Customers

  • Medium best or used only for certain category

  • Worst customers

  • Customers who have stopped using the card

• What type of products do you use?

  • Do you have a car loan & a credit card & a home loan & an investment account

  • Do you only have a car loan

  • Do you only have a credit card

  • Do you only have an investment account

ETC ETC - you get the gist!

DID YOU KNOW?

Did you know that banks in the US can get information about you from companies like Equifax (yes the one with the data breach a few years ago), Experian (also had a data breach), Transunion (also had a data breach) etc.?

These data brokers are essentially large companies that keeps track of your credit history, like how much money you owe and if you pay your bills on time. And lo and behold, Banks can LEGALLY buy this information to find out more about you and offer you special deals.

But don't worry, the government has rules to make sure your information is kept private and safe (did you see the data breach note for each one) .

And if you don't want your information to be sold, you can tell these companies not to do it. If you can figure out how exactly you need to do it!

So how exactly do Banks monetize the Data they Collect or Buy of you?

Some of the best Banks , or rather the relatively “Smart” Banks, have a fairly large Analytics teams that consume, compute and derive insights from all this data - for example

Customer Product Cross-sell

• John Smith - has a credit card limit of $35,000, only uses 25% of his credit limit, but uses another bank for his primary purchases because his credit card is only used for airline tickets.

  • Potential Insight - John is a high-income earner, and there is an opportunity to try and move him from his current bank with an attractive checking account & other product offers such as offering investment account offers or attractive interest rate on a home loan! Because John Smith fits the demographic and income profile of the bank’s most “profitable” customers

Increase Card Usage

• What about marketing? Well that’s an easy one, once the Bank has profiled you as what type of customer you are - Best Customers, Medium best, Bad customer,Customers who have stopped using the card etc. The bank has enough information from it’s own resources or from it’s partners like Visa & Mastercard (I’ll explain this in a second) on what type of Marketing Campaign would work best

• e.g Assume you are a Top Customer meaning you use their card FOR EVERYTHING - Utilities, Everyday spend like gas groceries etc., electronics etc., so based on your spend history the bank can deduce that their debit card is your primary card.

  • Potential Insight - There is a high probability that you would continue to use their debit card, even if the bank did not send any marketing material, your spend behaviors would not change. So from a marketing perspective, this segment is a good one to upsell higher value / higher margin products, such as Loans, credit cards, investment products etc! Basically a get the Banks hooks deeper into you…. I mean to deepen the financial relationship you have with your trusted Banking Partner.

• Another e.g Assume you are someone that OCCASIONALLY uses a Debit card for only certain types of purchases

  • Potential Insight - This is an easy one, basically to goal of any marketing campaign here would be to get you to spend on categories that you don’t spend on today! So if you only spend on gas and groceries, the bank will target you with a marketing campaign of the likes of - “Spend $100 on stationary and get $10 back” or “Spend $200 on buying construction supplies and get $15 back”

Now this is enticing absolutely, but the primary purpose here is to get you to spend MORE!

And you might think you are getting a deal, but actually, the marketing campaign is trying to reorient your behavior - by offering you incentives, and repetitive marketing campaigns, your mind slowly but steadily becomes primed to use their card as your primary card.

Did someone say puppetmaster?

At the end of the day, marketing is nothing but a means to (manipulating) / slowly influencing the psychology of the user to basically do whatever you want them to do!

How does Visa & Mastercard play a role here?

Did you know Visa and Mastercard have Billion Dollar business units solely dedicated to helping Banks and other types of institutions monetize their data? I spent the last 4 years in the Mastercard business unit initially called Advisors, now Data & Services - My sole goal was to help banks make more money, so Mastercard could make more money!

Even if it meant pushing ‘predatory’ (in my personal opinion) Credit Marketing campaigns to a low-income segment to get them to spend more! Again nothing illegal, but Ethics was not really a topic that was discussed - again not Mastercard’s fault, that is Corporate America in a gist.

Every Tom Dick Peter and Jamie and Romy and Sally are looking out for themselves! Didn’t sit right with me, so I bounced!

ANYWAYS…

So what? What do you do with all this information? Well the purpose I shared this is for two reasons

1. Now you know - That direct mailer you got in your mailbox, or Email you got in your inbox, was not done out of the goodness of your bank’s heart!

• Let’s do a little thought exercise -

  • A bank has 100,000 customers, and they spend $1000 per month on average per person, so basically that’s $1000 x 12 * 100,000 = $1.2 B / month

  • That’s a lot of money - but remember that banks make money on swipe fees - 0.5% on dollar value , so basically for the above example - the banks makes about $6M in swipe fees

• So imagine if the marketing campaign led to a minor increase in additional card spend of $100 per month - then the incremental interchange fee would be $600,000! Remember that’s just incremental! So based on the above, the bank made a total of $6.6M , and the $600,000 can be attributed directly to the marketing campaign that YOU responded to!

2. To get you to engage in more healthy banking practices such as - unsubscribing from your Bank’s mailers, asking credit reporting agencies to not sell your information, not getting sucked into ‘predatory’ marketing campaigns SPECIFICALLY designed to get you to spend more. And frankly understand, and have an open mind to cryptocurrencies because they (atleast the legitimate ones - like Bitcoin, Ethereum, Litecoin, etc.) were developed to circumvent 90% of the issues discussed here.

And in case any Banks or Governments are reading this - it’s worth noting that banks and payment networks are subject to various laws and regulations governing the use of consumer data, such as the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) in California. These laws set strict standards for the protection of consumer data and ensure that banks and payment networks are transparent about how they use and share consumer information.

Did someone say data breach? Shhhhh……

Till Next Time

Adi 

You can catch me on Youtube and/or Linkedin (or my podcast)