- As featured in Card Forum International January/February 2002, Volume 6, Issue 1 - 

Wallet Loyalty – Providing the Smart Credit Cards Solution
By Robert J. Wesley

Have you looked into your cardholder’s wallet lately? There are new cards fighting for wallet space. It isn’t just coming from other credit card companies but from retailers marketing their loyalty programs. These reward programs run the gamut including supermarket reward cards, drug store cards, video store cards, and office supplies store cards. It seems almost every major retailer has a per rewards card program. In addition, retailers are stuffing your cardholder’s wallet with paper coupons offering instant discounts. In 2000, 4.4 billion coupons carrying a face value of $3.3 billion were redeemed in the United States. So how do you prevent your credit card getting lost or worst pushed out of the wallet? Should your marketing strategy be to compete or join forces with the retailers? Can smart card technology help?

Advantages & Disadvantages of Retailer Reward Programs

Unlike credit card reward programs that lack immediate customer gratification, most retail reward programs provide instant value at the store checkout. As previously stated there are two common approaches retailers use to provide rewards:

·     Paper coupons: For example a 10% OFF coupon provides the customer with an instant reward. The coupon is easy to use and understand by the customer. It is also easy to produce and the retailer’s systems are designed to accept many varied reward combinations and permutations.

·     Card Programs: Many retailers issue cards or key fob reward programs. The programs vary from point systems to instant cash off. Most supermarkets issue these cards. As of late, other retailers such as drug, video, book and office supply retailers have launched their programs. These programs are fully integrated with the ECR system. As a result, the ECR normally prints out the reward received on the sales receipt.

Many of the paper and plastic card programs are scanned into the electronic cash register (ECR) using a bar code scanner while other retailers simply key enter a numeric code. Today, over 80% of all existing U.S. merchant Point-of-Sale (POS) counters have the capability to accept bar codes allowing almost all of the retailer reward programs to be supported by the existing ERC.

Just like credit card companies, retailers have to compete over securing their reward program’s position in the consumer’s wallet. High frequency retailers such as supermarkets have had a greater success ensuring their loyalty card is carried in the wallet. Conversely retail categories which have a lower shopping frequency, such as picture framing, eye glass retailers, winter ski sports stores have more difficulty in ensuring their rewards program card will remain in the wallet after it has been issued. As a result, these retailers tend to rely on distributing paper coupons via newspapers, magazines, and direct mail packs on frequent basis.  The cost of these on-going direct response marketing programs is a major variable in the retailer’s marketing mix.

Are Smart Credit Cards the Answer?

Today, retailers are willing to partner with credit card companies to jointly promote retailer funded marketing promotions. The credit card companies’ challenge and opportunity is to leverage the power of their direct marketing with instant rewards at the checkout counter.

The Smart Credit Card is one of the technology platforms that can enable credit card companies to meet this challenge. Smart Credit Cards have the ability to host multiple applications including electronic coupons, frequency programs, points accumulation programs and many others. Smart Credit Cards could store multiple merchant programs. Assuming this was achieved, the credit card company’s product would secure a prominent position in the cardholder’s wallet. Thus, credit card companies would be delivering the extremely important value proposition of convenience.

From a marketing perspective, credit card companies share the enviable position of frequently interacting with their customers similar to high frequency retailers (i.e. supermarkets). Credit card issuers have develop a highly sophisticated, multi-channel direct response marketing system for communicating with the cardholder on a regular basis. The access to this sophisticated system would be highly sought after by most retailers.

Two major obstacles have stood in the way of creating this “win-win” situation using Smart Credit Cards.

Paying for the Change:
Who will pay for the change in the retailer’s checkout system, especially the POS terminals to accept Smart Credit Cards? 

Credit card associations have a major initiative focused on upgrading the POS terminal system to accept Smart Credit Cards. The upgrade has been focused with the exception of one retailer just on the card POS terminals. It is estimated that the full end-to-end upgrade costs can average $1,000 per terminal. For the most part, the upgrade process is focusing only on delivering an additional new rewards programs through the card payment terminal. This leaves a full integration into the existing retailer’s ECR reward’s based system to still be addressed. Moreover, this investment is competing with the retailer’s other technology projects resulting in the retailer’s reluctance to make this considerable investment.

Managing the Information:
How can a credit company manage all of the retailer’s card information on the Smart Credit Card?

 There are varying viewpoints on this particular problem. Many credit card companies feel they are responsible for the information on a cardholder’s Smart Credit Card. No existing system exists to manage all the different retail reward programs on the Smart Cards issued. In addition no technology platform exists for the cardholder to dynamically upload and download information onto the Smart Card. Today’s Smart Card Issuers have taken the approach to distribute cards with pre-configured information. As a result, there is a great limitation on the types of reward programs that can be developed. This is further compounded when considering the number of merchant reward programs currently available. 

Bridging The Technology Gap Now

Is there an economical solution to enable smart credit card issuers to gain a competitive advantage that can be implemented in months, not years? The answer is yes!

The solution is to focus on making small incremental steps rather than sweeping changes of the existing infrastructure supported by a new fully integrated backend server solution. A successful approach is to focus on leveraging the retailer’s rewards system that is already integrated into the existing ECR system, not the payment system. By adopting this strategy, retailers and credit card issuers can forge joint marketing relationships and realize the benefits of Smart Credit Card reward programs before incurring a costly fully integrated payment system solution. Plus, there is greater flexibility to offer a broader array of promotions that can be varied based on specific card types, retail locations and product manufacturers.  

As previously mentioned many retailer reward’s programs utilize bar code technology, hence the creation of the Bar Code Smart Card Rewards Platform. This platform has been developed to transmit reward information from a Smart Credit Card into the retailer’s bar code system.  This highly compatible, low cost, easily integrated solution is available for Smart Credit Cards that have not had a retailer reward program loaded at time of issuance. 

Another solution is the POS LCD Smart Card Rewards Dispenser. This standalone POS device reads and display’s reward or promotional information that has been stored on a Smart Credit Card. Similar to the approach currently utilized by retailers for paper-base promotions, the information displayed by the device is manually entered into the ECR system by the sales associate. This device accumulates management information, which makes the reconciliation process easier for the retailer.

The most sophisticated and highly integrated solution is the wired via serial or keyboard port Smart Card Reward’s Platform. Rewards and promotional coupons are automatically transmitted from a Smart Card reading device into the ECR via the serial port. Available in a stand-alone option or an integrated with a card payment terminal, this solution is more technically challenging and costly to implement than the other solutions but allows for multiple rewards (i.e. several manufacturers coupons) to be read from a single smart card insertion.  

Recognizing these market trends at work, a Boston-based company, WearLogic, Inc., has developed the Flextek™ Platform, which provides a seamless bridge across the total shopping experience by transforming Smart Cards and other mobile devices into indispensable shopping companions. This allows WearLogic’s customers, (i.e. merchant retailers and credit card companies) to exchange critical information with their customers when and where the buying decisions are being made.

The Flextek™ Platform allows the customer to use Smart Credit Cards to exchange this information at the retail checkout. WearLogic has achieved this by connecting the checkout, in-store kiosk, and Internet connected PC to same information. The platform uniquely bridges the existing shopping technology such as bar code scanners, Smart Card readers, and payment terminals resulting in a cost effective rapid deployment for WearLogic’s customers. Patented technology makes WearLogic’s platform unique and sustainable. In addition, WearLogic’s ability to use industry-standard XML to connect our customers’, partners’, and mobile device companies’ servers, allows for easy upgrades and seamless extensions to the platform, as well as, a breadth of application specific expertise and channel opportunities.

WearLogic’s solution consists of open standard XML interfaces through standard translation to legacy issuer, merchant and manufacturer servers. 

The FleXML™ server is responsible for aggregating, serving and reporting customer POI exchanges. This 24/7 system supports its customers to set up and monitor offers in real time and has links to their existing online shopping sites to link in dynamic offers. A second wireless link connects to Shopcartes™, in-store kiosks, and shelf devices at the merchant location.  

The Shopcarte™ is a low cost dedicated merchant interface device connecting mobile devices to the cash register through the bar code scanner. A table of promotional offers stored in the device is updated through a wireless link. An important element of is the accompanying POS signage which helps drive awareness of the current promotion(s). 

Using WearLogic’s Flextek™ Platform solutions, credit card companies and retail merchants can leverage the power of today’s rewards programs in a fraction of the time (3 to 6 weeks) needed to implement other Smart Credit Card loyalty programs.  Delivering Smart Credit Card reward programs will position this new Smart Card as the most important and highly used card in the wallet. The result is increased wallet share and profits for the card issuer. 

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