Customer loyalty schemes Draft report September 2019 Table of contents Opportunity for comment ....................................................................................................... iii Executive summary ............................................................................................................... iv Shortened terms ................................................................................................................... x 1. Introduction .................................................................................................................... 1 2. Customer loyalty scheme background and characteristics ............................................. 6 3. Consumer issues and customer loyalty schemes ......................................................... 21 4. Data practices of customer loyalty schemes ................................................................. 34 5. Competition issues and customer loyalty schemes ...................................................... 66 6. Emerging issues and business practices related to customer loyalty schemes ............ 82 Appendix A: Consultation .................................................................................................... 85 Appendix B: Common loyalty scheme design elements across different sectors ................. 86 Appendix C: Presentation of terms and conditions and privacy policies .............................. 89 Appendix D: Example of targeted advertisements that lack adequate disclosure ................ 93 Appendix E: Relevant recommendations from the ACCC’s Digital Platforms Inquiry ........... 95 Customer loyalty schemes—Draft report ii Opportunity for comment You are invited to examine this draft report on customer loyalty schemes and comment on it by written submission to the Australian Competition and Consumer Commission (ACCC) by 3 October 2019. The final report will be prepared after submissions have been received and will be published in late 2019. The ACCC prefers to receive electronic copies of submissions, either in PDF or Microsoft Word format which allows for the submission text to be searched. Submissions, questions or queries about this draft report can be directed to [email protected]. Confidentiality To foster an informed and consultative process, all submissions will be considered public and will be posted on the ACCC’s website. Interested parties wishing to submit commercial-in-confidence material to the ACCC should submit both a public and a commercial-in-confidence version of their submission. The public version of the submission should clearly identify the commercial-in-confidence material by replacing the confidential material with an appropriate symbol or ‘c-i-c’. The fewer confidentiality restrictions placed on submissions, the more easily we can test information provided and reach accurate conclusions about the market. Therefore, we ask that information you claim confidentiality over be genuinely of a confidential nature and not otherwise publicly available. We request that you provide reasons in support of your claim, to assist us to better understand your claim and assess the information you provide. We are committed to treating confidential information responsibly and in accordance with the law. Where we are provided with confidential information, we will, to the extent reasonably possible, seek to protect the confidentiality of that information. In some circumstances we may be legally required to produce confidential information. For example, we may be required to disclose information that is subject to a confidentiality claim pursuant to a court order or subpoena. If this occurs, we will endeavour to notify and consult with you about the proposed release of your information and measures (such as confidentiality orders) that may be taken to protect that information. It is also important to note that we may share confidential information internally with ACCC and AER staff and with our external lawyers and consultants. For further information on the ACCC’s treatment of confidential information, please refer to the ACCC/AER Information Policy publication. Privacy For privacy reasons, personal information (e.g. home and email addresses, signatures, phone, mobile and fax numbers) may be removed from submissions before being published on the website. You may wish to remain anonymous or use a pseudonym; however, the ACCC may place less weight on the submission. Customer loyalty schemes—Draft report iii Executive summary The Australian Competition and Consumer Commission (ACCC) has examined consumer and competition issues that are associated with consumer-facing customer loyalty schemes in Australia, including the way in which customer loyalty schemes collect, use and disclose consumer data. Consumer and competition issues arising from customer loyalty schemes are a current priority for the ACCC. The operators of customer loyalty schemes must ensure they comply with the Australian Consumer Law (ACL) and make sure their terms and conditions do not include any unfair contract terms. It is also paramount that the operators of customer loyalty schemes ensure consumers have a genuine opportunity to review and understand the policy and operation of customer loyalty schemes to avoid misleading and deceptive conduct. A significant number of Australian consumers have reported experiencing a variety of issues participating in loyalty schemes. The ACCC and ACL regulators in states and territories have received approximately 2000 reports about loyalty schemes in the five years to December 2018. The ACCC’s review of the major customer loyalty schemes in Australia focused on the following key issues: Consumer issues: whether consumers are properly informed and receive the benefits advertised by loyalty schemes. Data practices: the collection, use and disclosure of consumer data by loyalty schemes and their partners. Competition issues: the potential impact of loyalty schemes on competing firms, in particular on new entrants. The purpose of this report is to highlight the consumer and competition issues associated with customer loyalty schemes to educate consumers and to inform the industry of the ACCC’s concerns with certain practices. Based on the information gathered during its review, the ACCC is concerned about a range of business practices in the customer loyalty scheme industry which have the potential to cause widespread consumer detriment. They include loyalty schemes: that do not present their terms, conditions and privacy policies in a way that consumers can readily understand that make unilateral changes to their terms and conditions in a way that may be unfair to consumers collecting, using and disclosing consumer data in ways that do not align with consumers’ preferences. This includes loyalty schemes not providing sufficient transparency and meaningful consumer control over the collection, use and disclosure of consumer data, and engaging in the following practices: o seeking broad consents from consumers and making vague disclosures to them about the collection, use and disclosure of their data o providing consumers with limited insight and control over the sharing of their data with unknown third parties o providing only a limited ability for consumers to opt out of targeted advertising delivered by third parties on behalf of loyalty schemes. Customer loyalty schemes—Draft report iv The ACCC has outlined in this report its concerns and views on certain practices, and calls on operators of customer loyalty schemes to review and consider these practices in the context of the ACL. In particular, loyalty schemes should consider whether consumers are being misled or subject to unfair contract terms. Further, loyalty schemes should review their approach to presenting terms and conditions to ensure consumers have a genuine opportunity to review and understand their policy and operation. Having placed the industry on notice, the ACCC encourages consumers to contact us and report concerns where these practices are continuing with their customer loyalty schemes. The ACCC will consider these reports in deciding whether enforcement action will be required to effect broader change. The objectives of customer loyalty schemes Customer loyalty schemes are ubiquitous in many sectors of the Australian economy and are particularly prevalent in the airline, supermarket, credit card, hotel and car rental industries. Consumer participation in loyalty schemes is high and the average Australian carries four to six loyalty cards. Fundamentally, loyalty schemes are a marketing device with the primary objective of attracting and retaining customers. Many firms invest in loyalty schemes with the aim of gaining a competitive advantage over rivals by influencing customer behaviour to encourage repeat purchases and introduce customer resistance to competing offers or products. In this sense, loyalty schemes have a dual strategy—an offensive strategy of acquiring new customers as well as a defensive strategy of retaining existing customers. Increasingly, for some loyalty schemes, this defensive strategy includes the collection and use of their customers’ data in order to develop consumer insights, which may be shared with or sold to other businesses, and to target customers with tailored advertising. Some loyalty schemes may also use this data to deliver targeted and personalised advertising to their own customers on behalf of other businesses. Consumer issues Consumers may benefit