Instead of charging you an abstract, nominal fee to generate extra money, banks are cashing in by selling your shopping habits to retailers. The new strategy could rake in $1.7 billion for banks by 2015, according to CNN.
Here’s how it works: retailers describe the type of customer they’d like to target based on how much they spend or where they shop and the bank sends a coupon to cardholders who fit the description. Banks are paid a commission for every consumer who uses the deal.
Businesses pay the banks about 10 to 15 percent of money generated for each product their customer buys, and banks usually pay an intermediary a percentage of their cut.
Financial experts say the new program will also benefit consumers.
“It’s better than Groupon and LivingSocial,” Madeline Aufseeser, an analyst with Aite Group, an independent Boston-based research firm specializing in financial services, told CNN. “Consumers are now going to see offers they’re actually interested in because they’ll be based on spending behavior.”
Some banks are using the new revenue stream to provide cash-back rewards for their cardholders.
Aite Group says it anticipates more than 460 million cardholders will enroll in these programs within four years. Many banks will automatically enroll consumers, but will provide an ‘opt-out’ option.
Not everyone is excited about the bank’s new idea.
“Maybe I’m old-fashioned, but I’d rather not have my bank shopping around my private details in any way shape, or form,” wrote Chris in Paris for the Americablog. “Unless someone specifically signs up for this, it should be considered theft.”
Participating banks include Wells Fargo, Citi and Discover. Other card issuers like Visa, PNC, U.S. Bank and Barclays are expected to launch similar programs in the fall or early next year.