First they showed up in your e-mail. Then they found their way onto Facebook. Now ads are coming to your checking account.
As banks test new ways to make money and attract customers, they are tucking ads onto the list of recent purchases on consumers' online bank statements. The charge for your breakfast at McDonald's, for example, might be followed with an offer for 10 percent cash back on your next meal at the Golden Arches. There's no need to print a coupon - just click the link, and the chain will recognize your debit card the next time it is swiped.
"The one thing these debit programs have is a significant amount of transaction and behavioral data," said Mark Johnson, president and chief executive of Loyalty 360, a trade group for marketers. "You're going to see a big push to make that insight more sellable."
Online banking is the latest frontier in the controversial field known as behavioral marketing, in which detailed personal information is used to target advertising. Consumer groups have decried the practice as an invasion of privacy, particularly since users often do not realize who has access to the most intimate details of their lives.
"It's definitely troubling," said Justin Brookman, head of consumer privacy for the Center for Democracy & Technology. "Most people don't notice them, understand them or opt out from them."
The ads are the brainchild of three-year-old Atlanta software firm Cardlytics, though other companies such as Boston-based Cartera have begun offering similar services. Several banks and credit unions in the Washington area use Cardlytics' ad program, although the firm declined to name them, citing contractual agreements. At least two other local banks will launch the ads in the spring. Regions, based in the Southeast, is the largest bank to have publicly announced a partnership with Cardlytics.
Co-founder and chief executive Scott Grimes, who previously worked at McLean-based Capital One, said the company's software runs on banks' servers, so consumers' personal data do not leave their secure networks. Consumers can opt out of the program, he said, but only about 2 percent of the 10 million households using Cardlytics' program do so.
More than half of users click on a link to activate an offer within the first month. National chains such as McDonald's and Macy's have begun testing the checking account ads, and the company said advertisers receive an average sales bump of $5.49 for each dollar spent on marketing to current customers.
"This is a trusted channel where people are paying attention," Grimes said. "It's the power of the targeting."
But trust can cut both ways. As the amount of personal data online grows, businesses have had to walk a fine line between using the information for profit and creeping customers out. Facebook learned that lesson several years ago when it was forced to back away from efforts to publish users' browsing habits on public news feeds. And it has been repeatedly criticized for not limiting advertisers' access to users' information, sparking a short-lived but vocal movement to quit the social-networking site.
Such controversies prompted the Federal Trade Commission to craft guidelines that address how and when companies should notify consumers about who has access to their personal information. In addition, Sen. John F. Kerry (D-Mass.) has said he plans to introduce an online privacy bill.
Banks see the ads as a potential substitute for popular rewards programs that they say have become unaffordable because of tighter regulations in the wake of the financial crisis. The new rules sharply reduced the amount of money banks receive from merchants each time a debit card is swiped - a fee that was used to pay for customer perks such as airline miles or discounted merchandise. J.P. Morgan Chase, for instance, announced it will discontinue debit card rewards programs for new customers starting next month.
According to a survey by research firm Mercator Advisory Group, 58 percent of debit card issuers offered a rewards program in 2009. But the percentage of banks thinking about launching a program dropped to 17 percent from 24 percent.
"It's just not even possible to continue rewards at this level," said David Robertson, publisher of the Nilson Report, a financial newsletter.
The checking account ads offer banks an alternate way to make money off debit cards: The discounts are paid for by the merchants, rather than the banks, in exchange for the ability to narrowly target who receives them.
McDonald's tracked fast-food customers in Houston. Nearly one in five who had been eating at a competitor redeemed an offer for 10 percent cash back on their next McDonald's meal. Among those whose debit card purchases showed they had spent at least $75 at fast-food restaurants over three months, 60 percent activated the offer.
"How do we go and monetize this massive online banking channel?" Grimes said. "Let's bring offers to people based on what they actually buy and what they're interested in, and not a bunch of spam."