Consumers "like" rock bands and clothing brands on Facebook. A loyalty rewards startup expects that they will also "like" their banks in exchange for discounts on purchases.
Taggo Pte. Ltd. has been testing its social media-geared system in Singapore and plans to bring it to the United States, where card issuers are revamping their rewards programs in light of pending debit fee regulations and other restrictions.
Under Taggo's model, consumers would click the "like" link on their bank's Facebook page, which indicates to their peers that they are fans of the bank's brand, and register their credit or debit cards on the page through an application plug-in.
Taggo's approach, which it is pitching to Singapore banks, could gain traction as card issuers look for ways to make redemption of rewards more tied to point of sale transactions, though analysts say the system faces challenges.
For starters, there's a question whether U.S. banks would be successful at getting consumers to "like" them on Facebook's social networking website. The approach Taggo is taking in Singapore is for consumers to register their payment cards on the bank's Facebook page, but analysts say this could be a privacy problem.
"Facebook, unfortunately, because it's so large and so popular, has obviously drawn a lot of spammers and marketing gimmicks that people sign up for … and I would say there's a significant number of Facebook users who have been burned by that," said Bill McCracken, chief executive of Synergistics Research Corp. in Atlanta. "You'd have a sizable minority who would say, 'I don't want my purchasing habits connected to my Facebook account in any way.' "
After registering the card over Facebook, consumers use the card at one of the bank's merchant partners, where they would automatically redeem discounts and other rewards, said Aneace Haddad, Taggo's chief executive. The merchant would also get recognition, because Taggo's system would post a message on the consumer's Facebook wall saying they "like" the merchant, Haddad said.
Haddad would not say which banks he is talking with in Singapore, but he said Taggo is close to finalizing agreements. "We're talking to global brands that definitely have a U.S. presence," he said in an interview last week.
Taggo tested the service in Singapore in October and November with the EZ-Link card, a contactless transit card that can be used at merchant locations.
Haddad acknowledged the need for a different strategy in the U.S.
For example, card issuers in Singapore have much tighter relationships with local merchants than they do in the U.S., Haddad said. It is not uncommon for banks to spend heavily to promote special offers at area merchants in local publications.
"The U.S. is a slightly different market," Haddad said. "You don't see these promotions as commonly."
Card issuing operations are separate from merchant processing in the U.S.
"Most of the rest of the world did not break issuing and acquiring apart," Haddad said. "The U.S. did a long time ago."
Because of that, Taggo most likely would focus on offering its service to merchant acquiring banks and independent sales organizations, or ISOs, which sell other processors' services to merchants, Haddad said.
In April, Taggo announced a partnership with ViVOtech Inc., a Santa Clara, Calif., mobile payments and loyalty technology company. At the time, Taggo was pushing contactless payment stickers that could be affixed to the back of phones.
Taggo is still using ViVOtech's software for managing redemptions but is not pushing contactless stickers at the moment, said Mohammad Khan, the president of ViVOtech.
Taggo's timing could be right for the U.S. market, given pressures on card issuers to reduce costs. On the debit card side, the Federal Reserve proposed in December capping the fees that merchants pay to banks at 12 cents per transaction, compared from an average of 44 cents currently. Interchange is the main funding source for most rewards programs.
"That's causing banks to certainly take a refreshed look at these merchant [rewards] networks," said Sarah Phelps, a principal with First Annapolis Consulting in Linthicum, Md.
With social media, "the first step is probably to figure out where their brand and business belongs before they start bolting on things like Taggo," Phelps said.