Baker Eileen Avezzano says she has a better way than using Groupon’s online deals to entice customers to buy her cheesecakes: She doles out loyalty cards that reward buyers for return visits.
The digital cards, designed by Cartera Commerce Inc., are linked to credit cards. They let merchants provide a discount or a reward, such as airline miles, every time consumers buy. Businesses like Avezzano’s can use the programs to collect data on when customers shop, how often they return, and how much they spend.
About 900 million transactions will be conducted with cards connected to merchant loyalty programs in 2015, generating $1.7 billion in revenue for the providers, Aite Group LLC estimates, up from $300 million in 2011.
“I see them going head-to-head,” said Peter Krasilovsky, a vice president at researcher BIA/Kelsey. “It’s an evolution of the deals space.”
The market for digital loyalty programs began exploding around 2010, when start-ups and venture capitalists starting thinking about how to bring loyalty punch cards into the digital age.
Cartera raised $12.2 million this month in a round of funding led by Venture Capital Fund of New England. Start-ups such as Plink LLC, CardSpring, and Mirth Inc. are also getting attention in the world of merchant deals.
“We think it’s a massive opportunity,” said Jeffrey Bussgang, a general partner at Flybridge Capital Partners, which invested in Cartera. “Card-linked marketing benefits card issuers and consumers equally.”
The programs, which reward buyers on top of any airline miles or points their credit cards already offer, are often cheaper than coupon providers, too. LivingSocial and Groupon typically take a 30 percent cut of a transaction, versus 5 to 15 percent when a loyalty-linked card is used.
Some loyalty programs let consumers get rewards of their choice, such as cash back, discounts, or virtual currency for games like Zynga’s FarmVille. Virtual currencies are seen as a way to attract people in their 20s, said Ron Shevlin, a senior analyst at Aite.
Plink, a Denver start-up, has a program that lets users earn Facebook’s virtual currency by dining at more than 25,000 restaurants, such as Burger King and Outback Steakhouse. CardSpring allows clients to build their own Web and mobile applications for cards that can deliver coupons, digital receipts, and loyalty programs.
Both LivingSocial and Groupon have started loyalty programs. LivingSocial introduced its first cobranded credit card with JPMorgan Chase & Co. in May. Cardholders can earn points that can be converted into DealBucks.
Groupon’s Rewards program, which gives consumers points for shopping at participating companies with a registered credit card, was rolled out at the end of the first quarter.