Cardlytics Demonstrates Truly Targeted Advertising; Goes After $380 Billion Yearly U.S. Ad Spend

Cardlytics CEO Scott Grimes shows off its Bank of America mobile ad app, a platform open to the company's more than 400 banking clients.  Photo by Lorikay.

Cardlytics CEO Scott Grimes shows off its Bank of America mobile ad app, a platform open to the company’s more than 400 banking clients. Photo by Lorikay.

Cardlytics Fast Facts

  • Contracts with 25 of Top 100 Advertisers
  • $500M in Purchases via Cardlytics ads in Q4’12
  • Partnerships with Over 400 U.S. Banks
  • Consumer Spending Insight on ~70% of U.S. Households
  • Banking Customer opt out rate = .17%
  • Banking Customer click rate = 15%

By Poncie Rutsch
Masters in Science Candidate
Boston University Science Writing Program

The promise of truly targeted advertising has always seemed to be just around another corner.  Yes, web search engines, app usage, and social media destinations have given marketers reams of data to experiment with targeted advertising, and there are a growing number of sophisticated tools to predict customer behavior.

However, click through rates—still an important standard by which digital ad campaigns are judged—have remained disappointing.

The goal of presenting ads to consumers that they may actually want, and that can show measurable return-on-investment to businesses in real-time, has been elusive.

The major historical hurdle has been the inability of marketers to access and analyze actual consumer shopping data, and then to respond to consumer interests by providing effective ad campaigns on a platform that shoppers will regularly pay attention to (and maybe even in real time).

Until now.

“We have solved for this,” said marketing entrepreneur Scott Grimes, CEO of the highflying targeted ad company Cardlytics, whose energy and confidence about his four-year-old company is palpable.

“We can reach very active shoppers with ads they actually want to see, and distribute them online and via mobile to an audience that approaches Facebook levels,” said Grimes.   “Today, I can walk into any chief marketing officer’s office, at any size enterprise, and demonstrate that his or her company is making money from Cardlytics marketing. Traditional advertising platforms have a hard time showing the same ROI.”

And advertisers are responding.  Cardlytics has amassed thousands of advertisers, including Burger King, Dunkin’ Donuts, McDonald’s, Starbucks and a quarter of the top 100 advertisers in the United States.  “What really demonstrates our ability is that we’ve locked in our large advertisers to long-term contracts,” said Grimes.

The Targeted Add Solution

Cardylitics’ roots are firmly in the financial industry.  While working at banking giant Capital One, veteran bankers Grimes and Cardlytics co-founder Lynne Laube saw revolutionary growth in electronic payments. Nearly half of their customers were banking online, and that number was growing by roughly 12 percent yearly.  According to Grimes, today about 70 percent of the U.S. population uses a debit card as their primary transaction vehicle.

Cardlytics co-founder Lynne Laube saw revolutionary growth in electronic payments, which led to development of Cardlytics.   Photo by Lorikay.

Cardlytics co-founder Lynne Laube saw revolutionary growth in electronic payments, which led to development of Cardlytics. Photo by Lorikay.

Unfortunately for the roughly 13,000 banks in the U.S., putting statements online costs more money than paper transactions and the growth in online usage can eat at their P&L.  The trick for Grimes and Laube was finding a way to make online banking profitable.

“Lynne and I believed we could sell ad space using the transaction data and the heavily used bank digital channels,” said Grimes.  “That’s when the idea for Cardlytics was born.”

Online statements offer valuable advertising space. Most online customers check their statements several times a month, so advertisements are guaranteed visibility.  However, Grimes and Laube recognized that they needed to work at scale, i.e. ad selling at one bank was not going to be successful.

“There needed to be glue that held together a large number of banks so that advertisers and marketers could have a single point of contact to prosperously grow their businesses,” said Grimes.  “And banks needed to be certain they were working with an organization that understood and could manage their privacy and security concerns.”

Overcoming those concerns was Cardlytics first technological achievement.  “We designed it that way from Day 1,” said Grimes.  “As former bankers, we knew the key to success would be to create a technological bridge that ensured banking customer anonymity and data security.”

To do this, Cardlytics developed two data filtering systems that communicate with one another across a secure connection.  One system lives on the bank’s servers, behind their own firewall, and crunches all of the transaction data from within the bank. The other system lives at Cardlytics, and can ask questions about the transaction data. But because the data never leaves the bank, individual banking customer information is completely secure and anonymous.

As a result of its focus on technology, today the company can boast that it has partnerships with roughly 400 U.S. banks, including four of the ten largest.

“The team did an amazing job identifying the tremendous opportunity created by the rapid growth in online banking and debit card usage,” said Bryce Youngren, managing general partner at Polaris Partners.  “The success of Cardlytics’ technology has been proven by their dominate market share in the U.S. banking system.”

Giving Consumers Ads They Want

From a banking customer’s point of view, Cardlytics is invisible.  In online statements, banking customers receive clickable offers from businesses that they visited in the past, or from businesses similar to stores where they have shopped. He or she can click on the offers of interest, and any discounts are credited to the customer on the next statement.

Bank customers regularly review their statements, making them a strong platform to place ads.

Bank customers regularly review their statements, making them a strong platform to place ads.

Cardlytics has the data to show that these offers are successful. According to Grimes, less than 1 percent of banking customers opt out from receiving offers, while most rewards companies report opt-out rates closer to 20 percent. And unlike the low percent click through rates for other digital advertising, customers click on about 15 percent of Cardlytics offers.

For example, in a recent campaign that Cardlytics ran for one of its major food chains, they placed a 10 percent off offer on statements for regular customers—who traditionally spent $5 or less—when they spent $10 or more.  “The campaign was ridiculously responsive,” said Grimes. “The average ticket price of each customer went from $5 to $11.13.”

The Power of Mobile, Geo-Specific Offers

Cardlytics isn’t resting on its technological laurels.  “Our goal is to be the best mobile marketing company out there,” said Grimes.  “We are continuing to make a lot of investments in mobile.”

Bank of America customers can access deals right from their smartphones.

Bank of America customers can access deals right from their smartphones.

Last summer, Cardlytics launched its largest mobile product, which already brings in a third of the company’s revenue.  “We have about 14 million mobile users today which I think makes us the second largest active mobile network,” said Grimes. “Second to Facebook in the U.S.”

The mobile banking app works across all banking partners.  When customers bring up their banking app, they see four buttons, accounts, pay bills, transfer money, or offers that Cardlytics has matched to them based on their spending.

In Q4 of 2012, Cardlytics added geo-tagging capabilities to their mobile services.  They can now see, for example, a potential Gap customer walking past a Gap store, know that you’re a J. Crew customer, and target you with an ad at just the right moment.  “We love marrying the incredibly rich purchasing behavior that we have from our banks with that location data that we get from our phones,” said Grimes.

Beyond their growth from mobile, Grimes believes Cardlytics will operate as a global company.   “With a very few exceptions, the things that make Cardlytics’ services work in the U.S. will make them work in other countries,” said Grimes.  “We already have a significant partnership in place in Europe, and we are now looking at Japan and Brazil.”

Clearly, Cardlytics is changing the scene for modern advertising.   If they succeed, the advertising landscape may never look the same again.

Categories: Polaris

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