Citi buys Kard to make merchants pay for the rewards it funds today

Citi has agreed to buy Kard Financial, a New York-based commerce media and rewards fintech, for an undisclosed amount ^[1][2]. The technology matters less than the accounting: a bank with $2.9 trillion in assets is acquiring the machinery to have merchants pay for rewards it currently funds itself ^[3][9].

Kard uses predictive artificial intelligence and first-party transaction data to deliver personalized, merchant-funded rewards ^[5]. Abhinav Anand, Citi's head of value cards, lending and commerce, said the deal gives the bank verified transaction data, machine learning-powered matching and a wider network of merchant relationships for incentive marketing ^[6]. He added that it will help Citi "present more tailored rewards based on actual purchase behavior, while also giving brands and merchants a direct way to reach high-intent consumers" ^[7]. Read the second half of that sentence twice. The cardholder receives the offer; the merchant is the one being sold to.

That is the concession. Points programs are a direct cost center that Citi funds, whereas merchant-funded, offer-based rewards shift the cost to brands that want targeted access to Citi's 70 million cardmembers, according to payments consultant Phil Philliou, who reads the deal as a signal that Citi is serious about pivoting its points program ^[8][9]. Philliou also pointed to non-points mechanics such as gamification and sweepstakes as ways to influence spending behavior ^[10]. American Banker places the purchase against a backdrop of interchange continuing to come under fire ^[4]. Aaron McPherson of AFM Consulting was blunter: with card interchange under threat, finding alternative ways to fund card rewards is important, and card-linked offers have long been the appealing alternative ^[15].

The bull case comes from Eric Grover of Intrepid Ventures, who argues that successful execution generates incremental sales and customers for merchants alongside incremental customers, payment volume and receivables for Citi, which in turn boosts interchange and finance revenue ^[12]. Grover says the deal should give Citi closed-loop-style control over promotions while operating over the open payment system, delivering value from small businesses to large co-brand partners ^[13], and that it enables dynamic, highly targeted merchant-funded ads, rewards and promotions ^[14]. The circularity is worth naming out loud: the hedge against weaker interchange is partly underwritten by the promise of more interchange.

The unresolved problem is measurement. McPherson said the main difficulty with merchant-funded rewards has always been proving lift, distinguishing transactions that would have happened anyway from net new ones ^[16]. Merchants keep funding rewards only while they believe that math, and merchant-funded rewards have gained traction with lenders and retailers over the last couple of years on the basis that they are mutually beneficial ^[11].

Watch whether Citi ever puts a number on what it paid, given the amount was undisclosed ^[1]. Watch whether the points program that Citi funds directly actually shrinks as merchant-funded offers scale, which is the only version of this deal that changes the cost line ^[9]. Watch how lift gets proven to merchants, because that methodology is the product ^[16]. And watch the receivables and payment volume Grover is counting on, since that is where the win-win either shows up or does not ^[12].