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Why banks and POS vendors should share the wealth

In a world where 90 percent of all commerce still happens in the physical world, it’s perhaps surprising that marketers are putting so little of the data generated to use.  A lack of technical sophistication, the persistence of legacy systems, and supreme focus on commercial results have made it extremely difficult for marketing service providers to tap this data and use it to drive consumer behaviour at scale. The solution, according to Wise Marketer contributor Nick Chambers, is for banks and POS companies to share the data wealth.

By Nick Chambers


Despite the historical efforts of leading grocers through their own proprietary or coalition loyalty marketing programs, the retail market remains focused not on data but rather  on other priorities, such as fighting daily fires in offering goods and services to their customers.  A need to collect, clean, analyse and then act on customer data, including the ability to measure incremental benefits and determine a ROI, is still very much a secondary consideration.

For their part, companies that serve merchants have traditionally focused on activities that bear the most revenue.  Point-of-sale vendors and payment companies, meanwhile, traditionally see more money from non-data services, meaning that the use of data is typically viewed as a distraction.

Commercial pressures, however, mean that this lack of focus on data has now begun to change.

Driven by their online experiences, merchants are becoming more comfortable using data to better manage their customers.  Tech startups, especially in the mobile payment and loyalty space, are showing merchants what is possible with improved data analysis and its impact on the bottom line.  In the next decade, new business owners will have grown up using technology backed by data and will expect far more sophistication from their providers.

POS vendors, meanwhile, have already started offering more added-value features, investing development in data and promotional tools that have become ‘table stakes’ within the product specifications.   As POS prices continue to fall due to lower POS software development hardware costs, the market will started to prioritise new data revenue streams.

Given that Cloud POS systems are now able to make available item-level SKU data from one API for all their merchants, these POS companies will be the first to benefit from the data transition.  Assuming they can collect enough item-level data from merchants, these Cloud POS companies will be able to tap into their large advertising budgets.

This data revenue starts at the lowest level: syndicated data that delivers aggregate insights across market sectors.  For example, syndicated data can tell you that product A sold more than product B last month.  Further filters on syndicated data might show you in what regions product A performed best, and at what prices.

As POS vendors learn that they must clean and organize data to grow its value, you'll see POS product development changes that force merchants to more uniformly code their sales items. You might see standardization of menu items from drop down lists, so merchants don't, for instance, misspell "cheese" on the sale of burgers with added cheese.  From here, the value of syndicated data increases another notch: you can start to analyse discounts and promotions to determine if they're creating lift on item sales.  As more item-level data enters the syndicated data pool and cleaner data attributes append to transactions, this virtuous cycle will continue. 

At some point, however, the syndicated data market will reach its maximal value. To continue to climb the revenue ladder, marketers will need to add more data.  Due to PCI compliance, however, only payment companies have access to Personally Identifiable information from customer card transactions.  POS vendors responding to PCI compliance have dumped all customer card data, effectively removing their software from the scope of PCI.

Here is where we should invite payment companies into the data discussion.  Since POS companies don’t collect Personal Identifiable information, they need to involve processors or card networks to match transaction timestamps at the merchant check level with timestamps from the processing stream, thereby marrying the two data sets.

Taking the data separately, here's what you're given:

  • POS Data Stream: Basket Data. Useful for basic syndicated data, but no POS vendor will pull this off independently. 
  • Processor/Network PII Data Stream: Customer names, which can give you demographic data of interest to low-margin retailers who want to know their customers and where else they're shopping, but not what they’re buying.
Married together, the data taps into high-margin advertising dollars because you're combining item data (which suppliers care about) with demographic data (which marketers care about). The key, however, is to make enough basket data and PII data available across enough verticals and regions at a deep enough level to give advertisers confidence that the data is reflective of the overall market.  This is why SKU data will need to come from a multitude of POS vendors, as no one company has enough data to grab the big advertising dollars. 

When payment processors learn about these new revenue opportunities, will they simply buy POS vendors to access their data? If they don’t, all sorts of new data-driven companies in the mould of Google, Facebook, and Amazon will be sure to take advantage.

Nick Chambers is CEO of Mobile Loyalty Technologies and a partner in the Customer Strategy Network.