If this scheme operates the way I understand it to operate, your data will be analysed if your ISP has their equipment installed. The opt-in or opt-out refers just to whether you get the targeted ads or not, not whether you data is being read and analysed or not. If that is the case, then to me it is utterly unacceptable.
Plenty of people use do indeed use loyalty cards. But you have to apply for one, and then you have to present it at the checkout. It's the customers decision about whether to have their data analysed or not, and it's easy to change your mind at any time and prevent any future collection of data. Just get rid if the reward card and, if necessary, pay cash.
Also, I rather suspect that a lot of people have no idea of the degree of data mining that goes on with reward cards, and the depth and accuracy of the picture that that allows companies to build. It may well be that many people wouldn't use them if they knew. Obviously, some would, because they want the points, or cashback, or whatever. But that's their choice.
Personally, I do not have a reward card, and refuse point blank to have one. I quite cheerfully forego the few quid it would gain me in order to keep my buying habits out of the grasp of stores as far as possible. That is also why I pay cash the bulk of the time.