PETERBORO, N.H.-Questions still surround merchant-funded incentives, including the return they provide retailers and how well they drive issuer transactions.

Analysts say it is too soon to tell how well the platforms will perform for banks and credit unions, noting that FIs certainly see the marketing savings appeal today.

Tim Kolk, owner of TRK Advisors, told Credit Union Journalhe is uncertain how well the discounts are driving transactions. "I have not seen data, and that does not mean it is not there, that indicates merchant-funded is increasing issuer transactions."

Consensus is merchant-funded works best for debit transactions than credit, and even better for more smaller-ticket items. But despite the infancy of the rewards that have come on strong post-Durbin, Madeline Aufseeser, senior analyst at the Aite Group sees them as big business. "The market has not been around long enough to really see what its strength is today. But by 2015, I expect merchant-funded rewards to be a $1.7-billion business for financial institutions."

FIS, which has rolled out the ScoreMore merchant incentive platform, has seen results, saying merchant-funded has generated $1 million in revenue for its clients. "Our experience is that you will be able to shift about 1% of consumers' spend," said Bob Legters, SVP of loyalty.

That is far below original projections for merchant incentives, said Legters, who noted that when merchant-funded cards began entering into more discussions a few years ago, there was talk of shifting spend by as much as 15%. "But when it came to actually convincing a cardholder to drive past their normal coffee shop and go to the one with the discount, we did not get the response we thought we would."

Still, Legters pointed out, shifting 1% to 2% of consumer spend "in aggregate adds up to a lot of zeros."

'A Lot of Zeros'

What will add more zeroes to the total in coming years, said Legters, is much better targeting of offers to fit consumers' lifestyles, which is already happening, sources agreed. "Eventually the primary revenue will be driven more from targeting, more mobile GEO location etc. You can't drop off a coffee deal on a large group generically. Offers and messaging have to be personalized."

For info:,,

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.