Investors, Take Note: Cardlytics’s Success is Only Just Starting
Cardlytics (CDLX) surged 25% Monday after the Atlanta company said its partnership with Wells Fargo is progressing ahead of expectations. For the record, that business is turning consumer spending data into bank customer loyalty programs.
Banks and financial institutions are in a tough spot. In an era of smartphone swipes, taps and instant gratification, their business model is under attack.
Nimble fintech companies like Square (SQ) and PayPal (PYPL) have a better understanding of evolving customer expectations. Meanwhile, advances in technology are eroding the regulatory hurdles that prevented disruption in the past.
Cardlytics was born in 2008 when two bankers, Scott Grimes and Laura Laube, recognized banks and credit unions were sitting on an untapped well of potential riches that had nothing to do with what was in their vaults.
The idea was simple: Personalize rewards programs by scanning through actual purchases made by bank customers. It sounds creepy. It is, sort of. But Grimes and Laube had an angle.
The company partners with banks to gain access to anonymized debit, credit, bill pay and automated clearing house information from customer accounts. Cardlytics then works with marketers to shape rewards programs based on the untagged data.
Personalized offers then show up when bank customers sign into their online accounts. When they see something they like, patrons tap or click on it to select. And that’s it. On the next outing to the selected store or restaurant, using the bank credit or debit card automatically captures the discount.
There are no coupons to print. There are no passes to show. The savings just magically appear. It’s a wonderful service.
Bank customers get more relevant rewards offers. Marketers get more qualified prospects, with measurable returns. Banks gain more loyal customers and a stable new stream of fees for playing matchmaker. Cardlytics collects fees for maintaining the platform.
It’s genius. And platform growth has been spectacular.
Until recently, the platform was supported by 2,000 mostly smaller regional banks. Then in 2018, Cardlytics signed JPMorgan Chase (JPM), the largest bank in the U.S., to the platform. Wells Fargo (WFC) joined in November.
Based on accelerating monthly active users, the company now sees fourth-quarter sales between $68.5 million and $69.5 million. For perspective, Grimes forecasted in November that investors should expect sales between $55 million to $59 million.
The growth story is only getting started. The company still has just a $2.2 billion market cap.
Cardlytics is now building scale to support 200 million MAUs. Product managers are putting together new businesses with marketers in eCommerce, travel, entertainment and groceries. Eventually the platform will be always on and extended to third-party developers. It’s a big vision with a potentially massive business opportunity.
It’s also exactly what banks need to better monetize their customer bases. In an era of increased competition from Silicon Valley start-ups, Cardlytics is leveling the playing field for legacy banks by transforming data into vibrant new revenue streams.
In my Tech Trend Trader service, my DISRUPT portfolio is built around digital transformation; the idea that new data-based strategies will define the future of commerce. Cardlytics exemplifies this strategy to great success.
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Whether you join us over in Tech Trend Trader or not, I recommend any smart investor to buy Cardlytics shares into any meaningful declines.
Jon D. Markman