Rewards for data: Drop gets US$44M to expand rewards app

At a time when consumers are increasingly wary about the private data they share and how it’s monetized, Drop Technologies Inc. has a strategy for how to extract their sensitive financial data from their hands: Just pay them for it.Drop announced it had secured US$44 million in venture capital investment on Thursday, as the Toronto-based…

At a time when consumers are increasingly wary about the private data they share and how it’s monetized, Drop Technologies Inc. has a strategy for how to extract their sensitive financial data from their hands: Just pay them for it.

Drop announced it had secured US$44 million in venture capital investment on Thursday, as the Toronto-based fintech startup aims to grow as a technology-powered alternative to traditional customer loyalty programs.

The Toronto-based tech startup has more than three million users who have signed up for this deal, and the company is working with more than 300 brands on their platform, including Expedia and Postmates.

“I think right now with the data issues around the world, I think Drop is definitely a leader in how it’s going to be positioned, and how it looks at the consumer,” said Onsi Sawiris, managing partner at New York-based HOF Capital, the lead investor on the Series B investment round.

“I’m a Facebook user and an Instagram user, and these guys are just monetizing my data left and right, without much transparency,” Sawiris said.” At least if I’m signing up for Drop, I know that if they’re using my data I will get something in return, and it’s very clear.”

When you sign up with Drop you consent to let the company track your purchases. When you buy something at one of the 300-plus partner merchants, you earn Drop points that can be redeemed for gift cards at Starbucks, Amazon, Sephora and Uber Eats.

“Consumers provide us with their data directly. We don’t go through merchant point of sale. There’s no swiping of cards at point-of-sale. It’s all automatic, based on your linked cards,” said Derrick Fung, co-founder and CEO of Drop.

“We believe that consumers more than ever before are open to providing their financial data in exchange for value and savings.”

The company is also in on advertising, allowing brands to offer promotions and discounts through the Drop app, and target those ads at users based on their purchasing behaviour.

“We believe that Drop can also create a new form of advertising, and a new form of performance marketing — we call it payments marketing,” Fung said.

“Imagine a world where you wake up and every single person has a very different, personalized experience based on where they’re currently shopping and based on new recommendations of places we think they’ll like, all off their financial data and all off very intelligent machine-learning algorithms.”

It comes with lots of privacy concerns and … consolidates their purchasing behaviour in one place for companies who want to advertise and sell them products

Joanne McNeish, Ryerson University

Joanne McNeish, associate professor in marketing at Ryerson University, said the company is attractive to consumers because it hooks directly into the data generated by debit and credit card purchases, but it has a darker side, too.

“It comes with lots of privacy concerns and I wonder if consumers realize how much this consolidates their purchasing behaviour in one place for companies who want to advertise and sell them products,” McNeish said.

It also represents a serious concern if Drop is ever hacked or suffers a privacy breach, because all of the customers’ payment cards are linked together through their Drop accounts, McNeish said.

Instead of thinking of Drop as a competitor to traditional loyalty programs, McNeish said she thinks of it as more like an alternative to credit card rewards.

“It represents a competitor to credit card companies who traditionally have had ownership of this data and made it expensive for companies to buy,” she said.

“I am not particularly impressed with the point value and so would imagine it is targeting those who can’t access higher reward values because they don’t/can’t pay annual fee for points card, or don’t travel or use services enough to accumulate decent rewards.”

As part of the announcement Thursday, Drop said Royal Bank of Canada participated as a strategic investor. Fung wouldn’t offer much in the way of details, but said RBC customers using Drop will enjoy an “elevated” experience as a result of the partnership. Drop is still committed to working with a wide variety of banks, Fung said.

• Email: jmcleod@nationalpost.com | Twitter: jamespmcleod

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