Coupons in your bank statement?

Transaction-driven marketers know how and where you spend your money

We expect to see ads when we read the newspaper, watch TV, or surf the Web. But if you've recently noticed retailer ads or coupons on your online bank statement, you've been targeted by a new type of promotion called transaction-driven marketing.

Thousands of U.S. banks participate in such programs, which enable third-party marketing and data-mining companies to sift through checking and credit-card account records for information on when, where, and how much consumers spend, then design customized come-ons based on the account holders' shopping preferences. Banks and marketers say this private information is "anonymized," that is, stripped of anything that could identify someone (name, address, account number). Though these programs might offer some attractive deals, most of the savings are unimpressive, and you might be tempted to overspend.

How it works

Transaction-driven marketers usually get information on purchases and offer deals to customers through banks. Some companies track your activities based on your social network "check-ins," via smart-phone apps, at various retailers.

"If we know you like to check into a coffee shop at 7 a.m. every day in New York, and you then fly to San Francisco, we can suggest coffee shops you might like in San Francisco," says Tristan Walker, director of business development at Foursquare, a mobile social network that began marketing deals to American Express cardholders earlier this year.

Advertisers reach banking customers in different ways: through clickable messages in online checking and credit-card statements, rewards websites, e-mail, or text messages beamed to them when their smart-phone GPS senses they're in the vicinity of a participating retailer.

The offers vary, too. Fifth Third Bank Prewards are digital coupons that automatically apply a discount when you swipe the bank's debit card at the specified retailer. With First National Bank of Omaha's My Deals, you select an offer included in your online account details to activate a cash-back rebate when you use your debit card at the retailer listed. Through FourSquare, an instant credit is deposited to your American Express account after you've met the terms of a deal and paid for a qualifying purchase with your card. Ohio Valley Bank lets its NetTeller online banking customers buy and print discounted retailer gift cards that are added to online statements by Truaxis, a marketing company formerly known as BillShrink.

What you need to know

These programs generate business for retailers and fees for marketers and banks. But be aware of the drawbacks:

You're automatically enrolled

You don't usually initiate sign-up; banks draft you. You can opt out, but it's hard to understand what you're opting out of based on the program descriptions that banks provide. In particular, the details are confusing about how your spending is tracked or what data are used.

You won't save much

Scott Grimes, CEO of Cardlytics, a transaction-driven marketer, says advertisers are willing to invest $10 or 20 percent off a purchase to get a new customer to spend more (5 to 10 percent for existing customers). But discounts of 5 to 20 percent are readily available outside of such programs.

You might overspend

The goal of these marketers is to learn about your spending habits and weaknesses so they can get you to spend more. On average, existing customers spend 89 percent more during a promotion, according to Cardlytics, which tracks 45 million consumers at 141 banks.

There might be privacy implications

As long as your bank shares only anonymized, aggregated data about your transactions, your privacy might be safe. But if your bank were to release other data about you (such as your birth date, ZIP code, and gender) even if it didn't actually disclose your name, the information could be used to identify you. This could be done by connecting one database containing no personal information with one or more that does, and linking them through common fields, such as ZIP code.

The weakness of anonymized data was demonstrated in the 1990s when a computer science professor spent $20 to buy an anonymized database of hospital visits by Massachusetts state employees and quickly identified the state's top employee, former Gov. William Weld, with his full health records, diagnoses, and prescriptions.

You might lose some protection

When you pay, say, $35 to buy a gift card worth $50 through Truaxis's StatementRewards, you get a 30 percent discount. But when you make purchases with a gift card, you don't get the same protections against loss, error, theft, and defective merchandise that you get when you use a credit card.

Bottom line

Lee Tien, senior staff attorney for the Electronic Frontier Foundation, a privacy advocacy group, says consumers should ask their banks about private information being used and the companies that have access to it.

This article appeared in Consumer Reports Money Adviser.