Bank of America began testing a new service on Wednesday to offer personalized deals to its customers based on their previous purchases, and if privacy concerns are overcome, other banks are expected to follow suit.
Called BankAmeriDeals, the service offers Groupon-like deals to customers who log in to the bank’s website. The offers will be embedded in their statement in a separate tab and are redeemable only with Bank of America credit or debit cards, Reuters reported. Customers will pay full price for purchases related to the deal, but get cash back in their accounts the following month.
The second-largest bank in the country will reportedly offer the service for free to customers but has yet to announce when the program will launch. The bank is testing the service with employees in North Carolina, South Carolina and Nevada and will roll out the program to more employees in February.
“The goal is to deliver easy, relevant offers to our customers at places where our customers already shop,” Tara Burke, spokeswoman for Bank of America, said.
Burke said the bank does not share customers’ personal information with third-party vendors, and customers’ privacy and security is the most important priority.
Adam Levin, chairman and co-founder of Credit.com and Identity Theft 911, said there are potential privacy concerns about the service.
“Bank of America has our spending data anyway, and has been waiting for a way to monetize it without giving the impression that customers are paying more than usual,” he said.
While most consumers say they are against being tracked by institutions, they tend to be less resistant if it saves them money or provides convenience, Levin said. Bank of America will not receive payments from customers or merchants.
The bank said customer data will be safeguarded. The matching of customers and offers will take place on software hosted on the bank’s hardware, in its data center behind the bank’s firewall, and without using personal identifiable information, Javelin Strategy and Research reported.
After fallout from the bank’s failed debit card fee proposal, which led to a 20 percent increase in closed accounts last quarter, Levin said the bank is trying to get customers to use its products more.
“The bank is asking, ‘How do we make people feel warm and squishy about us as a bank, and how do we make customer experience more interesting?’”
When BankAmeriDeals is offered to customers, Levin said he expects other banks or card networks to simulate the services.
“Those in the banking industry are lemmings. If one does something and it works, then they all do it,” he said.
James Sinegal, analyst for independent investment research firm Morningstar Inc., said Bank of America “needs to catch up” to card networks, like Visa, Discover, MasterCard and American Express, and issuers, or banks, offering expansive discounts.
“On the surface, it makes sense,” Sinegal said. “The service will deepen customer relationships. It should definitely lead people to use their Bank of America cards more.”
American Express increased the amount they spent on rewards programs by 10 percent in the last three quarters of last year, which Sinegal was significant.
“Companies have definitely been getting more aggressive in their rewards options and they hope to make that up with increased volume,” Sinegal said.
Sinegal said the new service is part of a larger trend of card networks fight for transaction volumes and accompanying fees charged to merchants. Sinegal said competition is going to heat up in credit card rewards. That may good for consumers but merchants could be squeezed in the process.
“It depends what percentage they are willing to pay. There is some bargaining that goes on,” he said. “The merchants are also hoping to get more volume in participating in this like with Groupon.”