Supermarkets are gathering an unprecedented amount of information on Australians’ financial situations and lifestyles as they prime for a clash of the titans with the big four banks.
The ABC’s 7.30 understands Coles and Woolworths are engaged in high-level talks about establishing banks and offering home loans.
Coles is keeping coy on persistent rumours it is applying for a full banking licence, but the supermarket group is already making an aggressive push into Australia’s trillion-dollar financial services sector, announcing a joint venture with GE Capital last month to deliver personal loans and credit cards.
7.30 has learned both Coles and Woolworths have been negotiating potential partnerships with Australian mortgage providers to enter the lucrative home loans market.
The supermarkets have already signed up more than 1 million Australians to their existing credit card and insurance products, and have registered the trademarks, Woolworths Money, Coles Money and Coles Financial.
Coles and Woolworths’ competitive edge over the banks is their treasure-trove of information on Australians’ shopping habits, budgets and lifestyles, gathered from their credit card customers and the 14.5 million members of the FlyBuys and Woolworths Rewards loyalty programs.
The programs gather data on purchases and spending habits from Coles and Woolworths’ more than 5,000 supermarket, petrol and liquor outlets, as well as from partners including Telstra, Qantas, WebJet, health insurer Medibank and energy company AGL.
A senior Woolworths executive revealed how that data was being used to tailor finance products and premiums in an extraordinary speech last September.
Woolworths director of group retail services Penny Winn told a marketing industry event shoppers who buy milk and red meat could expect cheaper car insurance deals.
“Customers who drink lots of milk and eat lots of red meat are very, very, very good car insurance risks versus those who eat lots of pasta and rice, fill up their petrol at night and drink spirits,” she said.
“What that means is we’re able to tailor an insurance offer that targets those really good insurance risk customers and give them a good deal … and it helps to avoid the bad insurance risks.”
The man leading Coles’ charge into financial services, Richard Wormald, has told 7.30 the company cannot rule out using shopper data to tailor its premiums.
“We’re always looking for new ways of delivering better value but today, we actually use a very traditional mechanism, looking at types of car, where people live to calculate their insurance pricing,” he said.
“As technology changes, we will reassess that, but we set ourselves a very high bar in terms of the way that we store and collect data and we’ll try and be transparent with customers and clear in how we’re using that.”
‘Wet dream’ for marketers, ‘nightmare’ for privacy advocates
Consumer group Choice says the example shows Coles and Woolworths loyalty program members and credit card users are giving away more information than they signed up for.
“That’s really a level of sophistication, a level of data analysis that’s never been available before,” Choice’s Matt Levey said.
“If you then consider that they’re moving into markets such as credit cards, then into banking, then you start overlaying those sets of data, it starts to create businesses who have a degree of power and a degree of information about Australians that have never previously existed.”
IT security consultant and data expert Troy Hunt says shoppers should think twice about what information they are handing over to potential insurance and loan providers.
“Some purchases can be very explicit in terms of what condition you might be in so, for example, are you a female purchasing a lot of maternity related products?” he said.
“If you’re in the midst of applying for a home loan and perhaps your income is a significant proportion of that decision-making factor, could that influence the people providing the finance to say: ‘Well, this might be a different risk category to what we originally thought’.
“For marketers, it’s the wet dream of data. For privacy advocates, it’s a bit of a nightmare.”
Mr Hunt says consumers are effectively being profiled according to their shopping habits.
“What if you were buying a lot of medicines or vitamins specifically targeted to high blood pressure, high cholesterol? What might someone providing life insurance or health insurance think of that?” he said.
“There are other things like magazines which are about very discrete topics, so if someone is buying a lot of performance car magazines, might they be a higher risk for car insurance?”
Former ACCC chief backs greater competition for consumers
Coles and Woolworths’ push into finance is straight out of the playbook of the British supermarket giant, Tesco, which established a bank in the late 90s and became the third-biggest retailer in the world, with the aid of one of the biggest data gathering programs in Europe.
One of the masterminds of the plan was Andrew Higginson, who established the Tesco Bank. He says its database of shopper information proved invaluable in developing finance products.
“Simple examples would be, say, if you had a group of customers who tended to buy their fuel from Tesco in the same place every time, you could deduce that those customers might only travel short distances in their local neighbourhood,” he said.
“In a car insurance sense, that’s a lot safer. There’s a lower risk of accidents than someone who might be driving thousands of miles up and down the country every year.”
Former Australian Competition and Consumer Commission (ACCC) chairman Graeme Samuel maintains consumers will benefit from any push by the supermarkets into banking.
He says Coles and Woolworths’ ready access to data could be just what is needed to shake up the big four banks and bring about cheaper deals for consumers.
“We need to understand that profiling is already occurring across a range of areas at the moment with the development of new technology,” he said.
“Google, Facebook, Amazon and other major operators in the technology market will profile.
“Advertisements will be directed to the information, for example, that you might contain in your emails.
“It’s the way business is operating and the important thing is for customers to have a choice, to be able to say ‘We don’t deal with a business or a social media outlet that runs the risk of breaching the privacy standards that we set for ourselves’.
“Privacy is always an issue but so long as customers have a choice as to whether or not they deal with a corporation that runs the risk of breaching the customers own assessment of what they need in terms of privacy, that’s the fundamental issue.”