As offline purchase data comes online, in-store changes for local marketing

At the end of 2011, Seth Priebatsch, the 22-year-old founder of Higher level, describes a potentially shocking scenario for the payments industry: Interchange fees, a longtime profit center for payment processors, would drop to zero. His argument centered on the concept that money is information and that the Internet naturally undermines industries that charge fees to move information (like the media).

As of early 2014, Priebatsch’s vision has not materialized, at least not yet. Sectoral interchange rates are not zero, but growing competition in mobile payments paired with a stricter federal oversight exerted downward pressure on fees. In turn, companies have sought to bundle payments with other ancillary services, using data as a resource to power other applications. The payments industry is slowly shifting from a logistics industry, focused on storing and moving money, to an analytics industry that generates services around its unique and complex data set.

If exchange is the purpose of a market, transaction data – information about who bought what, from whom, and for how much – is its pulse. With 90% of transactions occurring offline, the growth of connected payments and the subsequent ability of businesses and consumers to understand who is buying what in the real world has profound implications not only for the local market, but also for the digital economy. at large. Good.

Same money, new problems
Most payments in the United States are already electronic. According to Javelin’s research, debit and credit cards accounted for two-thirds of all point-of-sale transactions in 2012 – a figure that is expected to rise to nearly three-quarters by 2017. The challenge facing the industry today is not the digitization of payments – it is creating the necessary frameworks through which this data can be made available to developers and other third parties in a safe, secure and efficient manner.

Until recently, this data had only one purpose: to inform the various components of the payment industry – from the card issuer to the payment processor – that a transaction was taking place. Therefore, the infrastructure was designed to be fast and efficient, with a closed loop that intentionally prevents third parties from participating.

But in recent years, companies like Square, PayPal, Higher level and others have started to offer new payment systems, designed for a business model centered on data analysis and not on logistics. Although Square has become synonymous with dongles that allow small businesses to process credit cards through a smartphone, the company’s future rests on its network: the combination of a consumer-oriented mobile payment app and software back-end already used by merchants to process payments.

This is what makes transactional data unique. While information on consumer behavior or commercial offers focuses on a single market player, exchange data measures an interaction between buyer and seller. As a result, the process of creating, managing, and growing a local transactional data set faces many of the same constraints that bilateral marketplaces like eBay face, namely the need to simultaneously create two interdependent businesses .

Performance Marketing and the Other 90%
One of the most significant trends in business over the past decade has been the shift from a qualitative approach to a a quantitative decision-making process. From finance to agriculture, executives are turning to algorithms to guide where they invest, who they hire, and even where and what they plant next. And nowhere is this shift more apparent than in the digital marketing industry.

Today, performance marketing, which the IAB defines as campaigns aimed at urging consumers to take action rather than awareness, account for the majority of digital spending. In the first half of 2013, 65% of digital ad revenue were priced based on performance. But that’s starting to level off, according to the same IAB report.

A decline in performance marketing is expected to affect the digital marketing industry. On a per capita basis, digital advertising offers marketers two key advantages over traditional media: dynamic targeting and measurement. The slowing growth of performance marketing indicates that marketers are not taking advantage of the interactivity of the web. In terms of sheer “awareness”, impressions on the web really can’t compete with the deeper focus of a TV audience.

Part of the problem is that performance marketers, who typically measure success by transaction, can only see one in ten dollars spent in retail today – those happening online. The rest of the transactions, many of which may be tied to a given ad, are done in-store, offline, and invisible to advertisers. Bringing this transactional data online will dramatically expand the pool of data from which marketers can not only measure success, but also target messaging.

Today, a number of data companies are working to help advertisers connect their digital advertising efforts with the transactional data that many already have access to. datalogix, the veteran data company, for example, recently raised $25 million in funding to expand its work with Facebook and Twitter to measure the value of their emerging ad formats. The company works directly with stores, anonymizing purchase information collected by rewards and other loyalty programs. Then, it allows a marketer to target ads to those individuals and measure whether they’re spending more or less with the brand in subsequent months.

Combining offline transaction insights with local marketing could well lead to a significant shift in how we understand advertising ROI, in general, as well as the relative value of locally targeted media impressions.

Steven Jacobs is the associate editor of Street Fight.

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