- Email: [email protected]
The loyalty market
Sep CTT (Read Only)
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The loyalty market Smart loyalty cards are becoming big business. The take-over of Singapore-based Axiomatique by Welcome Real-time (Welcome) is the latest move in a fast-growing market. The merger between Welcome and Axiomatique was foreshadowed (Ctt June 2001, p9) by the announcement that Welcome was to join forces with Axiomatique and two smart card specialists, Maxxus International and SoftCARD Systems, to build a common platform for loyalty applications. The idea was to create interoperability between loyalty cards to enable merchants to accept cards regardless of the issuer; the model is the interoperability that exists between Visa and MasterCard credit cards and between Plus and Cirrus ATM cards. The new move, which sees Welcome and Axiomatique merging, suggests that the pace of development in the smart card-based loyalty market is quickening. Aneace Haddad, CEO of Welcome, believes that the US banks are at last beginning the long march towards replacing magnetic stripe with chip card technology. This means that there is no time to waste in building a major software company that can offer banks a loyalty package that can be used on smart cards in markets across the world. The two companies appear to offer complementary products – Welcome at the front-end, Axiomatique in the back office. Welcome’s principal smart card-based product is the XLS (eXtended Loyalty System). This is designed to boost use of smart payment cards by allowing the card to store, process and deliver the electronic equivalent of incentives such as coupons, gift certificates and punch cards (paper loyalty cards used by retailers to encourage repeat visits). Another development from Welcome is the software that allows RFM (‘recency, frequency, monetary value’) behaviour data to be placed directly in the smart card, where it can be dynamically updated at each transaction. Software in the merchant’s point-of-sale terminal interacts with behaviour data in the card, so targeted rewards can be provided to customers in real-time, directly at the point-of-sale terminal. Since the rules for giving out rewards are managed on the card and in the terminal, cardholders can take advantage of their rewards immediately. This means that the costs related to processing and handling redeemed rewards are reduced or even eliminated.
Card Technology Today September 2001
Axiomatique also offers a loyalty programme (AIMS), in which bonus points awarded to loyal customers at the point of sale can be redeemed immediately. But the principal product that Axiomatique brings to the new company is the BackManager. This is a backoffice management system that provides the operator with the ability to perform settlements and to provide detailed reports for operators and merchants.
Why banks are keen on loyalty products Bank interest - outside fraud-conscious Europe in adopting smart-card technology focuses on the opportunities for adding new products, particularly loyalty packages, to their basic credit card offerings. Aneace Haddad points out that, in the USA (and to a lesser extent elsewhere), the credit card market is suffering from cutthroat competition, increased customer acquisition costs and high rates of attrition. Financial institutions have been inventing private cards - issued by large, centrally managed retailers - and co-branded cards linked to retailer reward schemes, primarily airline loyalty programs. Some of the non-bank companies that launched these products are now among the world’s largest card issuers. But the largest loyalty category by far is the one that has not yet been linked to payment cards. In the USA, this is the so-called ‘punch’ card that lets a customer earn a free item or discount after a certain number of visits or dollars spent. A typical punch card is the one offered by a sandwich shop that offers a free sandwich after a given number of purchases. Coffee shops, dry cleaners, video rental stores, movie theatres, fast food restaurants, parking lots – they are all retail outlets that are likely to operate loyalty schemes. And, in addition to the fact that all of these merchants use loyalty cards that are punched or stamped at each visit, they all have another thing in common. They do not favour credit cards. And this means that they offer a tempting market opportunity for paymentcard issuers.
Combining the punch card market with payment cards, provides a golden opportunity for banks offering chip technology. This is because the smart card can integrate dozens of electronic punch cards. “The smart card acts as a wallet with lots of slots in it, ready to receive electronic punch cards from many different merchants. Just as private and co-branded cards proved to be an effective way for card issuers to get large retailers to encourage their customers to pay with plastic, many financial institutions now hope that smart cards will help penetrate the much larger market of smaller merchants and franchisees that tend to privilege cash and checks. Electronic punch card technology should prove to be an excellent way to get in.” “Welcome’s system makes the bank or financial institution issuing the card more competitive by adding value to the card and getting customers to use their card more often to use their card in preference to other cards in the customer’s wallet,” adds Haddad. “It makes the card attractive to consumers, allowing them to get rid of the paper bonus cards stacking up in the kitchen or making their wallets fat. And it gives retailers a competitive reason to invest in smart card readers by drawing customers back using a reliable, automated loyalty programme.” Co-branding Gemplus, world leader in smart card production, clearly believes in the opportunities offered by the loyalty market. The company is a shareholder both in Welcome and in Axiomatique and has been instrumental in bringing about the merger. Gemplus has adopted a very direct approach. “Welcome Real-time’s sophisticated and easy-toimplement software will help Gemplus achieve our goal of extending the use of credit, debit and e-purse cards into retail sectors dominated by cash and checks”, says a spokesman. “Since points or other benefits can be immediately credited to a smart card, customers are more likely to pay for purchases on the spot with a bank-issued loyalty card.” Gemplus points out that co-branding for loyalty programmes is already popular in Asian markets such as Taiwan, Singapore and Hong Kong. “Rather than exchanging their points for gifts, most customers prefer to cash them in as credits against future purchases.” “We are convinced that payment combined with merchant loyalty is the winning strategy. The banking and retail industries have been searching for a clear, simple business case for smart cards. Payment linked to merchant loyalty delivers that business case. This is the key to the mass deployment of smart cards.”
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The case for smart loyalty cards The case for smart loyalty cards is put by Alun Roberts of ICL’s e-Innovation division. “The emergence of multi-application smart cards means that smart cards can now perform a wide range of functions – not just loyalty. Retail organizations which invest in the technology can put a host of applications onto one card, including loyalty and charge card functionality and their own savings schemes and electronic purse functionality”, says Roberts. “Moreover, these applications can sit alongside applications from other organizations such as banks (e-purse), libraries, hospitals and universities (identity), transport authorities (travel authorization) and other retail organizations (loyalty and charge card). In this way, the costs and benefits of a smart card system are shared, making smart cards a cost-effective alternative for retail organizations looking to set up loyalty schemes.” Multiple retailers “We may see smart card systems being issued by large-scale retailers which have multiple trade formats. They will want multiple functionality and the ability to have several different things on the one card”, adds Roberts, stressing that combined loyalty/charge cards are a particularly strong likelihood. "The other possibility is that a number of non-competing retailers will come together and form a consortium for a smart card scheme on which they can all place their individual loyalty schemes. Since smart cards can actually store loyalty points, schemes based on them put an end to the costly process of sending out loyalty point statements to customers. The customer can find out how many loyalty points he has for himself by inserting his card into a smart card reader. Moreover, this loyalty point storage capability also ensures that point redemption can be handled locally at point of sale, thereby eliminating the need for a large, expensive, online IT infrastructure linked to a central database.” Retail organizations setting up smart cardbased loyalty schemes, Roberts says, can further improve their customer service by utilizing the cards for instant recognition and instant reward purposes. Again, these features can be delivered without an online link to a central server. “Like their magnetic-swipe counterparts, smart card-based loyalty schemes only become a real marketing asset to their operators when backed by advanced customer information
14
management systems as part of a broader CRM solution”, Roberts emphasizes. The importance of data collection “Such systems enable retail organizations to make sense of the customer information which their loyalty schemes collate. They can then work out not only which customers spend the most money with them, but also which customers buy the highest margin goods and which are the most profitable. They can also segment their customer base by age, sex, profession and a range of other factors. The end result is that retail organizations are armed with the information and analyses they need to apply appropriate treatment strategies to individual customers. “There is no point in introducing smart card schemes just to reward and enhance customer loyalty. One of the key objectives must be to analyze and make sense of the customer information which is collated so that you can find out what is relevant to different groups of people”, says Roberts. “Only then can you provide them with a really personalized service which is tailored to their needs.” ICL has deployed many smart card loyalty/access schemes, including a campus card at Florida State University and an access system at Fort Knox. ICL also delivered the managed service that supported the national smart card electronic purse and loyalty scheme, known as Easychip, which has been running for several years in the Netherlands. Easychip was initiated by a consortium of Dutch banks looking to supplement magnetic stripe debit cards with e-purse. It was then extended to include the loyalty applications of medium-sized retailers, such as butchers, which were too small to introduce such schemes for themselves. “The whole benefit of this scheme is that the one card can be used in many different places”, says Alun Roberts, adding that up to 46 organizations can put their loyalty schemes on one card. The managed service is intended to ensure that the information from the systems are designed from the outset to go into the marketing department, Roberts points out. “It is the marketeers who want data which they can manipulate so as to improve their targeting of promotions to individual customers. In both the US and European examples it is significant to note that multi-function operation has been the stimulus for the use of smart-card capabilities. It seems likely that where access control, e-purse, or strongly secure personal identification are already requirements, then smart card-based loyalty becomes truly viable.”
Smart card-based loyalty schemes Amex Blue in Australia An established client of both Welcome and Axiomatique is American Express, which has just launched its Blue smart credit card in Australia. The Blue card provides users with secure access via a card reader attached to their PC to a remote wallet, where their personal details are held. When shopping on-line, card holders can call up these details (using their PIN code) for automatic entry into on-line order forms at merchant websites. New applications and security upgrades can be downloaded on to the chip, after the card has been issued. Blue also enables card holders to shop in stores, using chip if the merchant’s POS terminal is chip-enabled, or the card’s magnetic stripe. Blue’s first chip-based feature in Australia will be a loyalty programme giving card holders access to benefits, discounts and special offers at a range of participating shops. Beginning in October, the programme will be available from the following retailers: Aquila, Blue, Central Station Records, Collins Booksellers, JB HiFi, Lush Flowers, Morrissey, Oroton, Oyster, Polo Ralph Lauren, Roses Only, Sony Central, and Timberland Australia. Card members will insert their card into instore readers to access bonus offers and discounts of up to 20% off. The Blue Card also features a magnetic stripe, so it can be used at merchant locations regardless of whether or not they have a chip reader. In addition to the special offers and discounts, Blue will offer card holders an Online Fraud Guarantee. This promises that card holders will not be held responsible for any unauthorized charges made with their Card on the Internet. Would-be card holders can: apply on-line; transfer balances from other cards on favourable terms; and join the American Express Membership Rewards programme (with access to leading airline points programmes). There is no annual fee in the first year. In addition to allowing the card holder to transfer points to participating frequent flyer or frequent guest programmes, the Membership Rewards points for can be redeemed for vacation packages, shopping, home and recreation and car rental rewards. The latest version of the Blue Card is made of clear plastic, with a blue box hologram and chip. American Express has developed the technology to create clear plastic cards and has a patent pending on the process. A consortium of smart card industry players has developed the loyalty
Card Technology Today September 2001
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application for the new Blue credit card. This involves the provision of chip application, backend server and terminal software. American Express first introduced Blue in the USA in 1999/2000, and has launched Blue in 10 markets over the last 12 months; four more launches are scheduled to take place by the end of 2001. Recent launches of the Blue Card have included Belgium - where the card is being issued by Alpha Card, a joint venture of Amex and Fortis Bank – and Dubai. Boots in the UK In the UK, the major smart card-based loyalty scheme is operated by Boots The Chemist, which claims that its Advantage Card is the largest smart card retail loyalty card scheme in the world. (The basic reward rate for the Advantage Card is 4 points for every £1 spent. There is no entry-level threshold; a spend of 25p will earn 1 point.) The basic Advantage card uses memory card technology. But Boots has now teamed up with Egg, the Internet bank, to offer a combined credit and loyalty card run on a micro-processor chip. The Advantage Card powered by Egg uses smart chip technology to manage both the Advantage card loyalty scheme and Europay, Mastercard and Visa (EMV) payment simultaneously. By adding a credit facility to the basic loyalty card, Boots and Egg have paved the way for the schemes that the US banks are now investigating. At the time of the Egg launch, the Advantage card scheme had 12.3 million cardholders, while more than 40% of the transactions in Boots stores were linked to the Advantage card. On average, cardholders spend 50% more than non-card holders. The next step is likely to be the widespread use of in-store kiosks, where customers can add the points earned on their credit card to their loyalty account. Apparently, 90% of the UK population visits a Boots store at least once a year. “Advantage Card holders shop more frequently than noncardholders, with an average transaction value significantly higher than non-cardholders”, says the company. “The target market for the Advantage Card is female (83% of Boots customers are female), aged 20-45 of B and C1 socio-economic status.” Boots says the Advantage card has been created using the principles of relationship marketing. “The way that Advantage Card information can be analyzed means that we can obtain a better understanding of our customer’s requirements and have an opportunity to establish a meaningful two-way communication with them.”
Card Technology Today September 2001
Student scheme for English teenagers In the UK, a new force has entered the loyalty market in the unlikely shape of the government. Retailers and service providers in England’s leisure, entertainment and clothing businesses are being presented with a golden opportunity to sign up thousands of 16-19 year olds for statesubsidised loyalty schemes. This will be one effect of the launch over the next twelve months of the government’s Connexions smart card scheme (CTT July/August 2001, p6). The Connexions Card is being rolled out across the country in the next 12 months to some 2 million young people between the ages of 16 and 19. The aim is to encourage young people to stay on in education after the official school-leaving age and to achieve a worthwhile qualification by the age of 19. To help achieve this aim, cardholders are to be rewarded for regular and punctual attendance at classes through a variety of rewards, including participation in retailer and service-provider loyalty schemes. The new card, sponsored and part-funded by the Department for Education and Employment, monitors enrolment and attendance by young people at schools and colleges, and validates claims for maintenance benefits. The card will be funded locally by public/private partnerships and the various educational establishments that will be connected to the system will not have to pay for card readers. For retailers who gain accreditation to the various regional schemes, the issue of the government-subidized loyalty card to 16-19 year olds will open up a large new cardholder market. Pilot projects Eight development projects for the Connexions Card have been running since late 1999 - in Bradford, Knowsley (Merseyside), Nottingham, Leeds, Humberside, Northumberland and Durham, Essex and Tyneside. Since September 2000, three ‘pathfinders’ - in Northumberland and Durham, Knowsley and Nottingham - have been building on the work of the development projects by testing the functions and benefits of the Connexions Card in greater depth. They are testing a range of supplementary functions, including e-purse (cashless card); the rewarding of behaviour other than attendance; links with the Millennium Volunteers initiative and Internet-based rewards redemption. A fourth pathfinder project, based in Bracknell, is to add Connexions Card functionality to its own smart Citizen Card. Rewards and loyalty Different reward and loyalty models have been tested by the development projects, and their
effectiveness is being evaluated. It is being suggested that rewards and loyalty schemes might be linked to the following: • Attendance. • Punctuality. • Completion of homework. • Achievement of agreed milestone.s • Good progress. • Participation in community activities. • Participation in sports/arts activities. It is important that loyalty points are awarded in a fair and transparent manner. The system employed must have credibility with young people and offer rewards that can realistically be achieved by students of all ability levels. Local loyalty schemes A good deal of earnest thought is going into devising rewards that young people are expected to regard as valuable – over and above the obvious ‘carrots’ of cheaper educational items such as books and stationery. This is where local retailers and service providers – particularly in the leisure, entertainmenrt and fashion business - will be making their case to the local consortia organising the Connexions network. In Nottingham, UK, pupils at schools and colleges are already using a Connexions combicard (contact and contactless chips) on which they record attendance at classes. The system has been developed by GuideLine Career Services, with technical assistance from the Integris systems house. The system was launched at the end of 2000 at Greenwood Dale School in Nottingham. Pupils enter their Connexions Card in a classroom terminal at the beginning of each teaching session; this information is subsequently collected and processed by a central server. The Connexions Card is linked to City Card, an existing scheme in the city of Nottingham, run by Nottingham City Council and managed by the Touch group. City Card provides 250 retailers and operators of leisure facilities in Nottingham and the surrounding district with a shared loyalty and reward system; the chip on the Connexions Card can now be read at City Card terminals. The Connexions Card uses its contactless (Mifare) chip to provide school children with a limitedperiod bus pass. There are plans to add an e-purse facility to pay for journeys on a one-off basis. Contact: Marjorie Banes at Welcome Real-time, Tel: +33 4 42 97 58 62, e-mail: [email protected] Alun Roberts at ICL, Tel: +44 07867 823881, e-mail: [email protected] Mark Chester at Guideline Career Services, Tel: +44 115 910 9042, e-mail: [email protected]
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The loyalty market Smart loyalty cards are becoming big business. The take-over of Singapore-based Axiomatique by Welcome Real-time (Welcome) is the latest move in a fast-growing market. The merger between Welcome and Axiomatique was foreshadowed (Ctt June 2001, p9) by the announcement that Welcome was to join forces with Axiomatique and two smart card specialists, Maxxus International and SoftCARD Systems, to build a common platform for loyalty applications. The idea was to create interoperability between loyalty cards to enable merchants to accept cards regardless of the issuer; the model is the interoperability that exists between Visa and MasterCard credit cards and between Plus and Cirrus ATM cards. The new move, which sees Welcome and Axiomatique merging, suggests that the pace of development in the smart card-based loyalty market is quickening. Aneace Haddad, CEO of Welcome, believes that the US banks are at last beginning the long march towards replacing magnetic stripe with chip card technology. This means that there is no time to waste in building a major software company that can offer banks a loyalty package that can be used on smart cards in markets across the world. The two companies appear to offer complementary products – Welcome at the front-end, Axiomatique in the back office. Welcome’s principal smart card-based product is the XLS (eXtended Loyalty System). This is designed to boost use of smart payment cards by allowing the card to store, process and deliver the electronic equivalent of incentives such as coupons, gift certificates and punch cards (paper loyalty cards used by retailers to encourage repeat visits). Another development from Welcome is the software that allows RFM (‘recency, frequency, monetary value’) behaviour data to be placed directly in the smart card, where it can be dynamically updated at each transaction. Software in the merchant’s point-of-sale terminal interacts with behaviour data in the card, so targeted rewards can be provided to customers in real-time, directly at the point-of-sale terminal. Since the rules for giving out rewards are managed on the card and in the terminal, cardholders can take advantage of their rewards immediately. This means that the costs related to processing and handling redeemed rewards are reduced or even eliminated.
Card Technology Today September 2001
Axiomatique also offers a loyalty programme (AIMS), in which bonus points awarded to loyal customers at the point of sale can be redeemed immediately. But the principal product that Axiomatique brings to the new company is the BackManager. This is a backoffice management system that provides the operator with the ability to perform settlements and to provide detailed reports for operators and merchants.
Why banks are keen on loyalty products Bank interest - outside fraud-conscious Europe in adopting smart-card technology focuses on the opportunities for adding new products, particularly loyalty packages, to their basic credit card offerings. Aneace Haddad points out that, in the USA (and to a lesser extent elsewhere), the credit card market is suffering from cutthroat competition, increased customer acquisition costs and high rates of attrition. Financial institutions have been inventing private cards - issued by large, centrally managed retailers - and co-branded cards linked to retailer reward schemes, primarily airline loyalty programs. Some of the non-bank companies that launched these products are now among the world’s largest card issuers. But the largest loyalty category by far is the one that has not yet been linked to payment cards. In the USA, this is the so-called ‘punch’ card that lets a customer earn a free item or discount after a certain number of visits or dollars spent. A typical punch card is the one offered by a sandwich shop that offers a free sandwich after a given number of purchases. Coffee shops, dry cleaners, video rental stores, movie theatres, fast food restaurants, parking lots – they are all retail outlets that are likely to operate loyalty schemes. And, in addition to the fact that all of these merchants use loyalty cards that are punched or stamped at each visit, they all have another thing in common. They do not favour credit cards. And this means that they offer a tempting market opportunity for paymentcard issuers.
Combining the punch card market with payment cards, provides a golden opportunity for banks offering chip technology. This is because the smart card can integrate dozens of electronic punch cards. “The smart card acts as a wallet with lots of slots in it, ready to receive electronic punch cards from many different merchants. Just as private and co-branded cards proved to be an effective way for card issuers to get large retailers to encourage their customers to pay with plastic, many financial institutions now hope that smart cards will help penetrate the much larger market of smaller merchants and franchisees that tend to privilege cash and checks. Electronic punch card technology should prove to be an excellent way to get in.” “Welcome’s system makes the bank or financial institution issuing the card more competitive by adding value to the card and getting customers to use their card more often to use their card in preference to other cards in the customer’s wallet,” adds Haddad. “It makes the card attractive to consumers, allowing them to get rid of the paper bonus cards stacking up in the kitchen or making their wallets fat. And it gives retailers a competitive reason to invest in smart card readers by drawing customers back using a reliable, automated loyalty programme.” Co-branding Gemplus, world leader in smart card production, clearly believes in the opportunities offered by the loyalty market. The company is a shareholder both in Welcome and in Axiomatique and has been instrumental in bringing about the merger. Gemplus has adopted a very direct approach. “Welcome Real-time’s sophisticated and easy-toimplement software will help Gemplus achieve our goal of extending the use of credit, debit and e-purse cards into retail sectors dominated by cash and checks”, says a spokesman. “Since points or other benefits can be immediately credited to a smart card, customers are more likely to pay for purchases on the spot with a bank-issued loyalty card.” Gemplus points out that co-branding for loyalty programmes is already popular in Asian markets such as Taiwan, Singapore and Hong Kong. “Rather than exchanging their points for gifts, most customers prefer to cash them in as credits against future purchases.” “We are convinced that payment combined with merchant loyalty is the winning strategy. The banking and retail industries have been searching for a clear, simple business case for smart cards. Payment linked to merchant loyalty delivers that business case. This is the key to the mass deployment of smart cards.”
13
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The case for smart loyalty cards The case for smart loyalty cards is put by Alun Roberts of ICL’s e-Innovation division. “The emergence of multi-application smart cards means that smart cards can now perform a wide range of functions – not just loyalty. Retail organizations which invest in the technology can put a host of applications onto one card, including loyalty and charge card functionality and their own savings schemes and electronic purse functionality”, says Roberts. “Moreover, these applications can sit alongside applications from other organizations such as banks (e-purse), libraries, hospitals and universities (identity), transport authorities (travel authorization) and other retail organizations (loyalty and charge card). In this way, the costs and benefits of a smart card system are shared, making smart cards a cost-effective alternative for retail organizations looking to set up loyalty schemes.” Multiple retailers “We may see smart card systems being issued by large-scale retailers which have multiple trade formats. They will want multiple functionality and the ability to have several different things on the one card”, adds Roberts, stressing that combined loyalty/charge cards are a particularly strong likelihood. "The other possibility is that a number of non-competing retailers will come together and form a consortium for a smart card scheme on which they can all place their individual loyalty schemes. Since smart cards can actually store loyalty points, schemes based on them put an end to the costly process of sending out loyalty point statements to customers. The customer can find out how many loyalty points he has for himself by inserting his card into a smart card reader. Moreover, this loyalty point storage capability also ensures that point redemption can be handled locally at point of sale, thereby eliminating the need for a large, expensive, online IT infrastructure linked to a central database.” Retail organizations setting up smart cardbased loyalty schemes, Roberts says, can further improve their customer service by utilizing the cards for instant recognition and instant reward purposes. Again, these features can be delivered without an online link to a central server. “Like their magnetic-swipe counterparts, smart card-based loyalty schemes only become a real marketing asset to their operators when backed by advanced customer information
14
management systems as part of a broader CRM solution”, Roberts emphasizes. The importance of data collection “Such systems enable retail organizations to make sense of the customer information which their loyalty schemes collate. They can then work out not only which customers spend the most money with them, but also which customers buy the highest margin goods and which are the most profitable. They can also segment their customer base by age, sex, profession and a range of other factors. The end result is that retail organizations are armed with the information and analyses they need to apply appropriate treatment strategies to individual customers. “There is no point in introducing smart card schemes just to reward and enhance customer loyalty. One of the key objectives must be to analyze and make sense of the customer information which is collated so that you can find out what is relevant to different groups of people”, says Roberts. “Only then can you provide them with a really personalized service which is tailored to their needs.” ICL has deployed many smart card loyalty/access schemes, including a campus card at Florida State University and an access system at Fort Knox. ICL also delivered the managed service that supported the national smart card electronic purse and loyalty scheme, known as Easychip, which has been running for several years in the Netherlands. Easychip was initiated by a consortium of Dutch banks looking to supplement magnetic stripe debit cards with e-purse. It was then extended to include the loyalty applications of medium-sized retailers, such as butchers, which were too small to introduce such schemes for themselves. “The whole benefit of this scheme is that the one card can be used in many different places”, says Alun Roberts, adding that up to 46 organizations can put their loyalty schemes on one card. The managed service is intended to ensure that the information from the systems are designed from the outset to go into the marketing department, Roberts points out. “It is the marketeers who want data which they can manipulate so as to improve their targeting of promotions to individual customers. In both the US and European examples it is significant to note that multi-function operation has been the stimulus for the use of smart-card capabilities. It seems likely that where access control, e-purse, or strongly secure personal identification are already requirements, then smart card-based loyalty becomes truly viable.”
Smart card-based loyalty schemes Amex Blue in Australia An established client of both Welcome and Axiomatique is American Express, which has just launched its Blue smart credit card in Australia. The Blue card provides users with secure access via a card reader attached to their PC to a remote wallet, where their personal details are held. When shopping on-line, card holders can call up these details (using their PIN code) for automatic entry into on-line order forms at merchant websites. New applications and security upgrades can be downloaded on to the chip, after the card has been issued. Blue also enables card holders to shop in stores, using chip if the merchant’s POS terminal is chip-enabled, or the card’s magnetic stripe. Blue’s first chip-based feature in Australia will be a loyalty programme giving card holders access to benefits, discounts and special offers at a range of participating shops. Beginning in October, the programme will be available from the following retailers: Aquila, Blue, Central Station Records, Collins Booksellers, JB HiFi, Lush Flowers, Morrissey, Oroton, Oyster, Polo Ralph Lauren, Roses Only, Sony Central, and Timberland Australia. Card members will insert their card into instore readers to access bonus offers and discounts of up to 20% off. The Blue Card also features a magnetic stripe, so it can be used at merchant locations regardless of whether or not they have a chip reader. In addition to the special offers and discounts, Blue will offer card holders an Online Fraud Guarantee. This promises that card holders will not be held responsible for any unauthorized charges made with their Card on the Internet. Would-be card holders can: apply on-line; transfer balances from other cards on favourable terms; and join the American Express Membership Rewards programme (with access to leading airline points programmes). There is no annual fee in the first year. In addition to allowing the card holder to transfer points to participating frequent flyer or frequent guest programmes, the Membership Rewards points for can be redeemed for vacation packages, shopping, home and recreation and car rental rewards. The latest version of the Blue Card is made of clear plastic, with a blue box hologram and chip. American Express has developed the technology to create clear plastic cards and has a patent pending on the process. A consortium of smart card industry players has developed the loyalty
Card Technology Today September 2001
Sep CTT (Read Only)
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8:37 AM
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feature
application for the new Blue credit card. This involves the provision of chip application, backend server and terminal software. American Express first introduced Blue in the USA in 1999/2000, and has launched Blue in 10 markets over the last 12 months; four more launches are scheduled to take place by the end of 2001. Recent launches of the Blue Card have included Belgium - where the card is being issued by Alpha Card, a joint venture of Amex and Fortis Bank – and Dubai. Boots in the UK In the UK, the major smart card-based loyalty scheme is operated by Boots The Chemist, which claims that its Advantage Card is the largest smart card retail loyalty card scheme in the world. (The basic reward rate for the Advantage Card is 4 points for every £1 spent. There is no entry-level threshold; a spend of 25p will earn 1 point.) The basic Advantage card uses memory card technology. But Boots has now teamed up with Egg, the Internet bank, to offer a combined credit and loyalty card run on a micro-processor chip. The Advantage Card powered by Egg uses smart chip technology to manage both the Advantage card loyalty scheme and Europay, Mastercard and Visa (EMV) payment simultaneously. By adding a credit facility to the basic loyalty card, Boots and Egg have paved the way for the schemes that the US banks are now investigating. At the time of the Egg launch, the Advantage card scheme had 12.3 million cardholders, while more than 40% of the transactions in Boots stores were linked to the Advantage card. On average, cardholders spend 50% more than non-card holders. The next step is likely to be the widespread use of in-store kiosks, where customers can add the points earned on their credit card to their loyalty account. Apparently, 90% of the UK population visits a Boots store at least once a year. “Advantage Card holders shop more frequently than noncardholders, with an average transaction value significantly higher than non-cardholders”, says the company. “The target market for the Advantage Card is female (83% of Boots customers are female), aged 20-45 of B and C1 socio-economic status.” Boots says the Advantage card has been created using the principles of relationship marketing. “The way that Advantage Card information can be analyzed means that we can obtain a better understanding of our customer’s requirements and have an opportunity to establish a meaningful two-way communication with them.”
Card Technology Today September 2001
Student scheme for English teenagers In the UK, a new force has entered the loyalty market in the unlikely shape of the government. Retailers and service providers in England’s leisure, entertainment and clothing businesses are being presented with a golden opportunity to sign up thousands of 16-19 year olds for statesubsidised loyalty schemes. This will be one effect of the launch over the next twelve months of the government’s Connexions smart card scheme (CTT July/August 2001, p6). The Connexions Card is being rolled out across the country in the next 12 months to some 2 million young people between the ages of 16 and 19. The aim is to encourage young people to stay on in education after the official school-leaving age and to achieve a worthwhile qualification by the age of 19. To help achieve this aim, cardholders are to be rewarded for regular and punctual attendance at classes through a variety of rewards, including participation in retailer and service-provider loyalty schemes. The new card, sponsored and part-funded by the Department for Education and Employment, monitors enrolment and attendance by young people at schools and colleges, and validates claims for maintenance benefits. The card will be funded locally by public/private partnerships and the various educational establishments that will be connected to the system will not have to pay for card readers. For retailers who gain accreditation to the various regional schemes, the issue of the government-subidized loyalty card to 16-19 year olds will open up a large new cardholder market. Pilot projects Eight development projects for the Connexions Card have been running since late 1999 - in Bradford, Knowsley (Merseyside), Nottingham, Leeds, Humberside, Northumberland and Durham, Essex and Tyneside. Since September 2000, three ‘pathfinders’ - in Northumberland and Durham, Knowsley and Nottingham - have been building on the work of the development projects by testing the functions and benefits of the Connexions Card in greater depth. They are testing a range of supplementary functions, including e-purse (cashless card); the rewarding of behaviour other than attendance; links with the Millennium Volunteers initiative and Internet-based rewards redemption. A fourth pathfinder project, based in Bracknell, is to add Connexions Card functionality to its own smart Citizen Card. Rewards and loyalty Different reward and loyalty models have been tested by the development projects, and their
effectiveness is being evaluated. It is being suggested that rewards and loyalty schemes might be linked to the following: • Attendance. • Punctuality. • Completion of homework. • Achievement of agreed milestone.s • Good progress. • Participation in community activities. • Participation in sports/arts activities. It is important that loyalty points are awarded in a fair and transparent manner. The system employed must have credibility with young people and offer rewards that can realistically be achieved by students of all ability levels. Local loyalty schemes A good deal of earnest thought is going into devising rewards that young people are expected to regard as valuable – over and above the obvious ‘carrots’ of cheaper educational items such as books and stationery. This is where local retailers and service providers – particularly in the leisure, entertainmenrt and fashion business - will be making their case to the local consortia organising the Connexions network. In Nottingham, UK, pupils at schools and colleges are already using a Connexions combicard (contact and contactless chips) on which they record attendance at classes. The system has been developed by GuideLine Career Services, with technical assistance from the Integris systems house. The system was launched at the end of 2000 at Greenwood Dale School in Nottingham. Pupils enter their Connexions Card in a classroom terminal at the beginning of each teaching session; this information is subsequently collected and processed by a central server. The Connexions Card is linked to City Card, an existing scheme in the city of Nottingham, run by Nottingham City Council and managed by the Touch group. City Card provides 250 retailers and operators of leisure facilities in Nottingham and the surrounding district with a shared loyalty and reward system; the chip on the Connexions Card can now be read at City Card terminals. The Connexions Card uses its contactless (Mifare) chip to provide school children with a limitedperiod bus pass. There are plans to add an e-purse facility to pay for journeys on a one-off basis. Contact: Marjorie Banes at Welcome Real-time, Tel: +33 4 42 97 58 62, e-mail: [email protected] Alun Roberts at ICL, Tel: +44 07867 823881, e-mail: [email protected] Mark Chester at Guideline Career Services, Tel: +44 115 910 9042, e-mail: [email protected]
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