Michael Tolkin is the founder of Merchant Exchange, a site that wants to be the one-stop shop for rewards programs. When you get two dozen emails a day in your inbox about promotions, deals, and freebies, it becomes so distracting as to be considered spam. But when you put those all in one dedicated site, argues Tolkin, and when you give consumers the power to filter out unwanted messages, communication between brand and buyer grows more fruitful. And by aggregating (while anonymizing) your credit and debit card spending data, Merchant Exchange offers a smarter system for both merchant (who can target high-value potential customers) and consumer (who can be automatically rewarded for loyalty).
Merchant Exchange just signed up its 75th merchant, and is finalizing a million-dollar angel round. We caught up with Tolkin to learn more.
FAST COMPANY: What is Merchant Exchange?
MICHAEL TOLKIN: It’s a universal rewards network. The commercial ecosystem as it exists today is quite cluttered, with a whole bunch of rewards programs in silos. You have to sign up for each one individually, manage each one individually, and redemption is a pain in the neck.
So do you pool my frequent flier miles and Duane Reade loyalty points and turn them into a single Bitcoin-like rewards currency?
Not exactly. The brands we work with each have their own mini-program within Merchant Exchange. But the main consumer pain point, in terms of separate points of registration, separate points of managing programs, and separate points of redemption—all that’s addressed in one place. We’re all hit up with a ton of spam in our personal inboxes. We feel fundamentally that each person should have three inboxes: a professional inbox, a personal inbox, and this third inbox—the commercial inbox—that essentially doesn’t exist.
So Merchant Exchange is trying to be that third inbox. How’d you get the idea?
When I was in college, I was on a tight budget, so I signed up for a bunch of email lists to get rewards, points, and offers. I found it was drowning out my important messages, so I wound up treating all of it as spam. Some people create separate inboxes just for commercial messages, but by doing it in a closed ecosystem like Merchant Exchange, it enables some cool features. For instance, users can filter the type of message—since a gift or reward is very different from an announcement or offer.
How are the rewards, perks, offers, etc. implemented on your site?
We have members register their credit and debit cards. If you go to Dunkin Donuts every day, spending hundreds of dollars a month in coffee, you’re probably a great target for Starbucks, but Starbucks has no idea you even exist. With Merchant Exchange, Starbucks can give you rewards and perks to try to win you over. We’ll aggregate all your spend data, put that data in a black box, and run algorithms to understand what your spend potential score is. Any of our merchant partners can target you on that basis, with one nuance: the individual consumer selects the brands they are opting to receive messages from. You will never receive anything from a merchant you have not explicitly consented to receive message from.
How does a user redeem these rewards or offers?
It’s done automatically on the back end with the credit and debit cards. We don’t believe people who are exceptionally busy should be walking around having to check in, scan things, and type in codes.
What can you tell people who might be squeamish about registering their cards and sharing that data with you?
We have a set of values, and at the top of our list is that the consumer owns his or her data. It’s not our data to sell to a third party, it’s not our data to hand over. It’s one of the reasons why we put such substantial resources to developing a security system that is bank-level, with the most effective encryptions, to make sure your data is super secure and super private.
What are your goals for the site?
Our goal is to have every merchant in the world on our platform, and every consumer in the world on our platform.
A modest goal.
If everyone’s getting a deal, then isn’t no one getting a deal?
That’s the daily deal model, and some can argue that’s the Gilt model as well. But by creating a much more holistic consumer profile—one not only built upon demographic and interest data but also verified spend and transaction dates—we offer a more powerful way to target individuals. Not all consumers are created equally, and not all people should receive the same offer or the same reward. It should be based on a combination of factors, either the ability to spend, or the fact that they already spent with you.
How do you make money?
It does not cost anything for the member. Merchants pay a per-message fee, the rate of which varies as to how targeted the message is and to how many people it’s being sent. But you own your data. We are an aggregating vehicle for you, and we will help you monetize your data in the form of rewards and incentives. But ultimately you as an individual own that data and we will not be monetizing the data directly.
It’s sort of like you’re brokering a consensual data swap between consumers and merchants. You’re facilitating a kind of consensual data sex.
[Laughs.] Exactly. I saw your article about Trunk Club, and it seemed like the whole thing was about how it'd help people have more sex.
I try to bring these interviews to the topic of sex, whenever possible.
There are certain buildings in some cities called "The Merchants’ Exchange," and that was our inspiration for our name. But as a domain name, it simply doesn’t work. That’s why we have it as Merchant—singular—Exchange.
This interview has been condensed and edited.
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