Can Card Issuers Turn Loyalty Program Costs Into Revenues?

A Case for Merchant-Funded Reward Programs
by Zilvinas Bareisis, August 29, 2012
Industry Trends
North America


Merchant-funded rewards (MFR) platforms promise a truly “win-win-win” solution with clear benefits to merchants, financial institutions, and consumers. Many FIs have either already launched or are considering MFR programs. Do they deliver expected benefits? What does the future hold for merchant-funded rewards?

The report Can Card Issuers Turn Loyalty Program Costs into Revenues? A Case for Merchant-funded Reward Programs is the first of two reports on merchant-funded rewards. It discusses the definition and evolution of the term merchant-funded rewards and describes various companies competing in this space. In addition, this report describes a case for MFR programs and assesses the extent to which the expected benefits have been achieved so far in the market. It also reviews the current state of the market and considers its likely future direction.

Many offerings fit under the merchant-funded rewards banner—from daily deals companies (e.g., Groupon) to players targeting consumers directly with card-linked offer propositions (e.g., Linkable Networks), and from single issuer/acquirer solutions (e.g., American Express) to third party platforms which manage merchant relationships and provide technology platforms to multiple FIs to bring merchant offers to FI cardholders delivering most features.


“It takes time and effort to build a substantial network of merchants, FIs, and consumers, which is why the MFR programs have yet to truly move the needle in terms of overall results,” says Zilvinas Bareisis, Senior Analyst with Celent’s Banking Group and author of the report. “However, the MFR market is brimming with promise, clearly on an upward trajectory in terms of FI and merchant adoption, and with some impressive individual success stories already.”

Third party MFR platform vendors, such as Affinity Solutions, Cardlytics, Cartera Commerce, edo Interactive, FreeMonee Network, Truaxis, and other players such as Linkable Networks play a critical role in MFR market development. A companion Celent report, Selecting a Merchant-Funded Rewards Platform: An In-depth Analysis of MFR Vendors, includes detailed profiles of each of these players and an in-depth analysis of how the platforms can be distinguished from one another.

This 32-page report contains 11 figures and 5 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary




Defining Merchant-Funded Rewards


Key Players Enabling Merchant-Funded Rewards



Segment 1: Merchant-funded, No FI Engagement



Segment 2: Merchant-funded and Card-linked



Segment 3: Issuer Own Programs



Segment 4: 3rd Party Platforms For Multiple FIs


MFR Platforms: Business Case, State of the Market and Outlook






Financial Institutions and Consumers


Potential Risks and Conclusions


Leveraging Celent’s Expertise



Analyst Access



Support for Financial Institutions



Support for Vendors


Related Celent Research


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