Why Banks Sell Merchant Offers Instead of Data
- Selling raw cardholder data to third parties produces negligible revenue for major retail banks.
- Businesses resist payment processing fees but spend heavily from marketing budgets to acquire customers.
Growth and marketing
Patrick McKenzie on growth and marketing
7 quotes from 1 episode on Complex Systems, each with a timestamped link to the source.
7 quotes1 episode
The short version
Patrick McKenzie said financial institutions use cheap loans and merchant rewards as marketing tools to acquire highly profitable consumer deposits. First Republic funded the bank's entire low-interest unsecured loan program by attracting large checking deposits from the same cohort of new customers.
Most interesting insights
Companies cap their spending on payment acceptance fees but show high willingness to pay for customer acquisition.
“One insight the industry had is that there is a limit to businesses' desire to pay for payment acceptance, but a much higher willingness to pay for customer acquisition…”
Cash App tested small $20 loans at rates far below traditional payday options to acquire consumer spending volume.
“In a very different fashion, another thing that has been tried at least, and I don't know the current status of it, was Cash App attempting to do very, very low cost loans, low balance loans rather, on the order of $20 at very, very low costs relative to like traditional costs for payday loans.”
From First Republic and Cash App: Why Cheap Loans Win Deposits
Top talking points
Banks tap marketing budgets to influence purchases
Card issuers demonstrate they can drive consumer behavior for companies like Starbucks. Cardlytics captures this marketing spend, funds customer incentives, and pays the bank for access to the relationship.
“Those are administered by a publicly traded company called Cardlytics, which charges the likes of Starbucks to drive them business, pays the customer incentive out of that marketing spend, and also pays the bank for lending them the customer relationship…”
Patrick McKenzie, Complex Systems · October 2026 · Listen ↗ “Much like Google and Facebook, issuers can demonstrate to the most sophisticated organizations on the planet that they can deterministically influence actual purchasing behavior…”
Patrick McKenzie, Complex Systems · October 2026 · Listen ↗ Loss-leading debt acquires profitable deposit cohorts
First Republic Bank offered unsecured personal loans below 10% to attract new accounts. On a cohort basis, the large deposits these new customers brought in fully funded the debt the bank issued to acquire the new accounts.
“First Republic, pour one out for them, they're no longer with us, now absorbed into Chase as a result of the 2023 miniature banking crisis, routinely did offer unsecured consumer debt for loan consolidation and other purposes at rates rather below 10%.”
Patrick McKenzie, Complex Systems · October 2026 · Listen ↗ From First Republic and Cash App: Why Cheap Loans Win Deposits
“…an interesting argument that First Republic made is that not on an individual basis, but on a cohort basis, the new deposit accounts that they were attracting through this very frankly, almost absurdly attractive offer on the debt side, was funding all of the debts that they were issuing to get these new accounts.”
Patrick McKenzie, Complex Systems · October 2026 · Listen ↗ From First Republic and Cash App: Why Cheap Loans Win Deposits
1 more quote from Patrick McKenzie
“You are paying people one basis point and taking in 275 basis points of revenue, so, okay, that's a pretty good business already. And if you're doing that for $100, but or have $400 behind it where you are paying one basis point and then putting it in T-bills for, you know, 5% or whatever T-bills earn these days, it is just a wonderful, wonderful business to be in.”
From First Republic and Cash App: Why Cheap Loans Win Deposits
Key takeaways from these write-ups
First Republic and Cash App: Why Cheap Loans Win Deposits
- First Republic Bank regularly issued unsecured personal loans below 10% (and occasionally below 3%) to acquire early-career professionals.
- The bank's model relied on cohort economics: the large checking deposits from these newly acquired high earners funded the low-interest loans.
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