News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

FreeMonee Makes 2013 the ‘Year of the Gift’

FreeMonee Makes 2013 the ‘Year of the Gift’ 

By D.J. Murphy, Editor-in-Chief

A three-year old startup is harnessing the power of big data and no-strings-attached cash to drive more traffic and more spend to online and brick-and-mortar retailers. Merchants spend hundreds of millions of dollars each year on consumer incentives designed to bring more shoppers through the doors, but they’re not spending that money as efficiently as they could be, according to Jim Taschetta, chief marketing officer for San Mateo, Calif.-based FreeMonee. 

Taschetta says one can look no further than gift cards for an incentive that works better than any other—especially coupons, which are the primary incentive vehicle currently used by retailers. 

“There is a product already on the market retailers use that’s incredibly effective at drawing consumers in the door—the gift card,” he says. “When retailers use gift cards they find they’re ten times more effective than anything else they can do to bring customers in the door.” 

The problem with using gift cards—essentially a cash gift you can only spend in one place—is that retailers don’t have a scalable way to ascertain which consumers should get them and how much they should get. How can they leverage an incentive with guaranteed lift as profitably as possible? 

FreeMonee2 “What we realized is they can’t,” Taschetta says. “For a retailer to give out gift cards—no-strings-attached incentives—on a large scale, they have to know what the consumers who get them are going to spend. They only want to give it to people who are profitable to them. It’s a thorny problem, but we think we’ve cracked the code. We figured out how to determine exactly what you’re going to spend so we can give you the right gift to bring you into the store and get you to spend enough money to make it worth it for the retailer.” 

The trick lay in tapping the transactional data of debit and credit card issuers and using it to predict exactly how much money it would take to drive a particular consumer into a store and how much they would spend once they got there. The company took two years to build what it calls its “gift underwriting engine” to do exactly that. 

“We have a bunch of PhDs from places like FICO and Google,” Taschetta says. “They built this engine across the terabytes of data we have access to. And that’s the secret sauce. Without that you have to give out coupons and coupons are not motivating.” 

The “terabytes of data” FreeMonee feeds into its underwriting engine come from the billions of transactions made by hundreds of millions of credit and debit cardholders. The company has partnered with five of the top 10 issuing banks in the U.S.—including US Bank, Discover and Capital One—to source that data. The information FreeMonee gets is “anonymized,” according to Taschetta, so the company does not maintain any relationship with individual consumers. After the numbers on a cardholder have been crunched and the appropriate gift value determined, the issuer notifies its cardholder via his or her preferred method (email, text or mobile app) that a no-strings-attached cash gift is available if they use their card to make a purchase at a specific retailer.  

“So you might receive a $15 gift on your U.S. Bank debit card for Best Buy,” Taschetta explains. “U.S. Bank will deliver that through whatever communication channel the customer has opted-in to and the gift is linked to the card with an expiration date. As soon as you walk into the store and make a purchase, FreeMonee sends a message to the bank saying the cardholder needs a $15 credit for his Best Buy purchase. The purchase will work online or in a store.” 

He notes that the effort required by merchants to offer this program is minimal. There is no POS integration or training for store staff. And, FreeMonee provides extensive reporting to the retailers to show them the effect of their spend on sales. 

FreeMonee1 “Because it’s all linked to the back-end through the card, there is no set up for the retailer,” Taschetta says. “All a retailer needs to do is assign a budget, give us a logo and tell us what their profitability objectives are—how much they’re willing to spend per customer to make it economically feasible for them. We can turn it on in less than a week. Then, we report back the transactions that have taken place. We can report what the actual lift is and the return on ad spend. We explicitly answer the question, ‘Did I drive profitable incremental growth?’” 

The relationships with the issuers enable FreeMonee to send out free gifts weekly through a ready-made distribution system to hundreds of millions of cardholders offering retailers what they couldn’t have before with the targeted gift card offers they know work well: scale. 

There are patents pending on the underwriting engine, but Taschetta says, FreeMonee’s real advantage is first-mover status.  

“More than anything, we have at least a two year head start on anyone,” he notes. “It’s not going to come down to the patents, it’s going to come down to the fact we’ve reached critical mass before anyone can replicate what we do.” 

And, FreeMonee believes the opportunity for card-linked, no-strings gifts is going to blow up much sooner than that. Taschetta, in fact, is calling 2013 “The Year of the Gift.”  

“We’re already starting to see a massive shift from coupons as a primary incentive vehicle for retailers to gifts,” he says. “In the next two years I think you’ll see hundreds of millions to billions of dollars shifting to this new medium because there’s a lot of inefficiency in the promotion of coupons used today. Gift marketing is growing in importance. As an example companies like Facebook recently announced a gift offering. Retailers know gifts work, they just haven’t figured out how to do it at scale. We have.” 

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Daniel Leibovitch