Barriers to building customer loyalty with a card

Enterprise Innovation recently published an article about Taggo. Check it out here.

Building a base of loyal customers remains an ongoing challenge for most companies – whether they are retailers, utility companies and even organizations in the business-to-business space.

Haddad believes that as the customer identification process becomes simpler, and we do away with the need to issue dedicated plastic cards, CRM could become much more of a mass market solution for the large numbers of businesses that are not big enough to use current CRM solutions. “This will help CRM companies expand their addressable market with loyalty solutions for lots of new retailers that could not be addressed in the past,” predicts Haddad.

Web 2.5 Opportunities for New Generation of Web Entrepreneurs

(This article was first published as a guest post on e27.)



I recently launched Taggo, a membership card aggregator and storefront, using a new platform-as-a-service model that is increasingly being referred to as Web 2.5.

With Web 2.0 already mature – think social networking, blogs, video sharing, mash-ups, and a myriad of other applications that facilitate user-generated content – and with Web 3.0’s elusive semantic search capabilities still far off in the distant future, a new term is emerging to describe companies that are starting to fill the gap.

Web 2.5: What is it?
Web 2.5 is about aggregation, personalization, and other tools that help us with our Web 2.0 world now, today. Tech entrepreneurs are using it to develop new types of Web applications at very low cost, using essentially free services that are available thanks to the first two generations of Web companies. Some of these Web 2.5 entrepreneurs are already becoming wildly successful.

Intuit recently paid US$170 million to acquire two-year-old startup Mint.com, a data aggregation site that lets users consolidate their bank accounts and credit card statements in one place, where they can manage their finances. Trumpeted “the triumph of Web 2.5”, Mint.com links to bank Web sites to aggregate and filter the customer’s data. The service was created on a shoestring budget. Mint.com acquired 2 million users in two years with no ad campaign, other than a small amount spent on search engine terms. Instead, they rely on free social media, with 36,000 Facebook fans and 19,000 Twitter followers, a blog, and an iPhone application. Mint.com had US$10 million in sales when they were acquired – that’s a whopping valuation of 17X revenues. You would think we were back in the good ole days!

The terms Web 1.0, 2.0, 2.5 and 3.0 are mainly jargon of course, since they don’t actually refer to different technical versions of the Web. Nevertheless, they are useful in describing important changes in applications and business models. Web 1.0 helped lay down the initial infrastructure of online business. While many of those players are no longer around, the next generation of Web 2.0 companies built their businesses on the platform created by Web 1.0 entrepreneurs. In turn, with Web 2.5, yet another generation of entrepreneurs is building new services on the Web 2.0 platform.

Platform as a Service
With Web 2.5, we are seeing the emergence of platform-as-a-service, which takes the existing software-as-a-service model (also known as SAAS) to another level. SAAS offers companies the ability to use expensive software at low cost, with no need to purchase in-house equipment, databases and servers. A SAAS application’s features and functionality remain essentially the same as with the traditional software version of the application. Platform-as-a-service provides additional capabilities.

A key element of Web 2.5 is that platform-as-a-service providers manage the customer’s profile data, such as name, address, billing and payment details, etc., and allow developers to create applications that leverage that data. Think Amazon, Google, Facebook and the iPhone app development environments, all of which are valuable to developers in part because of the customer data that these platforms have. Developers can bill customers through the platform provider’s billing capabilities, using credit card information that the customer previously registered. Shipping is easy, with no need to re-capture address details. These are basic ideas, but you get the picture.

A Web 2.5 platform can be generically defined as an aggregation service that simplifies the customer’s life, combined with tools that let developers create applications using the customer’s profile, managed by the platform provider. It does not need Web 3.0’s profiling of the customer’s online purchases, browsing behavior, searches, etc. Basic customer information is already very helpful in creating useful applications today.

That’s a generic definition that can be applied to lots of different areas and completely different applications. Here are several examples.

In the payment space, making Amazon’s OneClick feature available to third-party developers is one example. The PayPal X developer’s platform is another excellent example. And of course developers of iPhone apps enjoy the iPhone’s built-in payment capabilities as well. In the social networking space, Google’s OpenSocial is a set of APIs that lets developers share and access social data.

My own startup venture, Taggo, is an example of applying these concepts in my area of expertise, transaction systems for credit cards, loyalty cards and membership cards. The Taggo platform is used by companies that develop CRM, loyalty, membership and point of sale systems for retailers. This developer community consists of a large number of vertical market systems providers, for the most part local and regional companies that each specialize in one or a few retail segments. Taggo provides the underlying platform that lets customers use their mobile phones to replace lots of plastic cards, while Taggo’s platform users develop the actual systems that power a wide variety of retailer loyalty, membership and prepaid card programs. Four systems providers have signed up as Taggo platform users, covering major retailers in South East Asia, India and Australia and New Zealand. Check out ETP International, Integratech, Memberson and Transactor Technologies. We expect to sign a total of thirty systems providers by the end of 2010.

Here are several questions to guide you in thinking about Web 2.5 entrepreneurship opportunities. These questions are all open-ended and can be difficult to answer. But better that you ask yourself these questions now instead of having somebody else ask them later.

What is your platform all about? So what? Who cares? Who really REALLY cares?

What pain does your platform address? Who has that pain? Is your platform more like vitamins (nice to have to keep away potential future pain), pain killer (needed right away to eliminate pain) or cocaine (addictive, think social networking, gaming, etc.)?

How will you deal with privacy issues? Will any of the customer’s details be shared with application developers? Why will customers give you permission to share their details? If you will not share any information, why will customers trust you to protect their data?

Which developer community will most benefit from your platform? Why? How much will they pay? How will they pass those costs on to their customers? Who are their customers?

Why you? What is your special story that makes this venture something that nobody other than you should launch?

With good answers to all of these questions, you may be on your way to becoming the next Web 2.5 mogul.

Making Customer Relationship Management Easy

Youngupstarts recently did a piece on Taggo, and ended up doing something on entrepreneurship.

"Most people think entrepreneurship is one of the riskiest decisions they can ever make in their life. Not Taggo’s Aneace Haddad. The 49 year-old CEO and owner of the mobile card solutions provider says that entrepreneurship is the safest career path he could have chosen."

See the full post here.

Banking's single most important innovation in the past 25 years: ATMs (Paul Volcker)

Paul Volcker is angry with bankers.

"There is little evidence innovation in financial markets has had a visible effect on the productivities of the economy."

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.”

Volcker believes the industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".

See here, here and here.

The missing link in the NFC story

There is a growing realization that retail applications will drive NFC adoption over the next few years, in a bigger way than credit cards and transit. Leave your loyalty card at home and tap your phone instead. Top-up your coffee account now, without a card. Get a free desert with your next value meal, just tap this smart poster.

Assuming that NFC mobile phones finally become available, and that business models become clear (I know, I know, just assume) the next barrier is the retail infrastructure.

Anybody that has dealt with chip, EMV or contactless deployments knows how difficult it is to upgrade the retailer infrastructure. And that’s just for the payment terminal, a relatively small part of the cash counter complexity. Compared to the rest of the retailer’s systems, the payment process is highly standardized, thanks to security and compliance requirements defined by the major payment schemes.

In contrast, providers of retail applications operate in a very messy world with virtually no standards. There are hundreds if not thousands of companies that develop retail applications for CRM, loyalty, promotion management, couponing, etc. Every single one of these companies specializes in a small number of vertical markets, maybe one or two. Experts in supermarket ERP systems have almost never been able to become experts in fashion ERP, much less restaurant marketing. The promotion management methods are always different from one supplier to the next, couponing business models are entirely different for supermarkets and for fast food outlets and fashion retailers, loyalty techniques that work for department stores don’t work for petrol stations, supermarkets or convenience stores. Even if basic concepts are sometimes the same, the bits and bytes are always different.

If upgrading payment terminals is difficult, where the payment function fits in a small device that pretty much always works in approximately the same way, provided by a small group of companies that are very well known in our community, imagine the complexity of dealing with the rest of the retailer’s infrastructure, provided by a much larger group of companies, most unheard of in our industry.

If we want NFC to be deployed on a massive scale, we need to have the same level of connection with this vendor community as we do with banks, telcos, payment processors, terminal vendors, card suppliers, etc.

We need to work with the companies that supply the systems and services that make retailer POS systems work, the systems that actually process the promotions and coupons and discounts that you get on your cash register receipts, the CRM systems that drive retailer marketing programs.

Who are these companies? What are their needs and business objectives? What are their pains? In what way is NFC valuable to them, valuable enough for them to really want to integrate it into their systems?

A small number of loyalty companies are beginning to develop systems using NFC. Zapa in Ireland, Tetherball in the US, Adelya in France and several others elsewhere are loyalty marketing companies that have added NFC to their products. They compete with hundreds of similar loyalty providers who have not yet adopted NFC.

Zapa raised €2.5 million to develop and roll-out “a number of unique applications from customer loyalty schemes to NFC payments”. Most of Zapa’s competitors can’t raise such funds. A simpler approach is needed for a large number of suppliers to adopt NFC at low cost, so that retailers can continue having the rich choice of solutions that they are used to.

TSM (Trusted Service Managers) provide part of the solution. They were designed to manage bankcard data securely on NFC mobile phones, and tend to look at retail marketing programs as something essentially identical. That’s a mistake. For one thing the costs involved are very different. Retailers may pay US$0.50 for a plastic card, much less than the costs of a new generation chip equipped secure bank payment card. In addition, the pains and objectives between the two types of card issuers are very different.

TSM vendors assume that the service provider, i.e. the bank, the transit operator or the retailer, already has a relationship with the customer. This is true for the bank and the transit operator, as well as for a few very large retailers. But it is not necessarily true for the vast majority of retailers.

For most retailers, there is much pain in getting customers to join a program, fill out a form, put the card in their wallet, and keep the card there for every subsequent visit to the retailer. More and more people refuse to fill out yet another form for yet another card that will invariably be left at home. If the retailer’s card is seen as a bankcard, then the TSM will just add complexity to the enrolment process, since it creates the additional step of fiddling with one’s phone to get the program securely loaded through the TSM.

The current TSM approach also adds another complexity that will become unbearable in time. With a single card loaded to your mobile wallet, it might be possible to go through a few keystrokes to get to the card when you need to wave your phone at the point of sale. But as soon as you have more cards, the process is going to be horrible. Imagine at Starbucks, flipping through all of your programs, selecting Starbucks, then realizing that you selected the Kuala Lumpur Starbucks application when you are in Singapore. The POS terminal flashes an error message and you have to flip through pages on your mobile phone again.

NFC will die a quick death if that becomes the user experience, yet it is exactly the user experience that we are moving towards.

Take a look at this video that I find very scary. It throws in coupons as well. You physically select each coupon that you present to the point of sale terminal, as well as choosing the payment method.

My new venture, Taggo, is a card aggregator and storefront platform designed for companies that develop CRM, loyalty, membership and point of sale systems. Taggo has not yet been launched, and already four systems providers have signed up as platform users, covering major retailers in South East Asia, India and Australia and New Zealand. Check out ETP International, Integratech, Memberson and Transactor Technologies. Integration takes around two weeks with each company. We expect to sign a total of thirty systems providers by the end of 2010.

Today Taggo is an RF-ID sticker, but we are working with TSM vendors to load Taggo as an NFC application in the phone. This will automatically provide access to all of the retail solution suppliers that integrate Taggo into their systems.

Working with companies that provide retail CRM, promotion management, couponing and point of sale solutions actually takes me back to my roots as a young programmer in Denver, Colorado, in the mid-1980’s. I was working for a retail software solutions provider, developing a POS program generator that had a configurator tool designed to replicate the capabilities of popular cash registers. I learned all about promotions management, payment types, coupon processing, inventory management, and ergonomics at the point of sale.

The company was JPMA Inc. If you haven’t heard of them, you can be sure that other players in the retail solutions space have. And that’s exactly my point.

Art of Entrepreneurship: A 2nd session created for overflow demand

Wow, my workshop on the art of entrepreneurship is now overbooked, so we have set up a second session on Thursday November 26th, 7pm to 8:30pm.

E-mail Kai at kai.kardiva@gmail.com to reserve your spot.

Don't miss this! The Art of Entrepreneurship, a special workshop by Aneace

Thinking about starting your own company? Fantasizing about being your own boss? Wondering if you have what it takes to start a company, create a great new product or service, and get funding for your project? Becoming an entrepreneur can be an incredibly rewarding way to express your creativity. Just like any art form, the path is not easy. Join us to learn a few basic skills that can dramatically improve your chances for success. The teachings in this interactive workshop are simple, powerful, and useful in creating any type of new venture.


Date: Monday 23rd November
Time: 7pm to 8:30pm
Venue: Singapore AsiaWorks Arts Fest

Sign up quickly! There are only 20 seats available due to limited space.

Click here for more details.

Taggo Launches Web 2.5 Membership Card Aggregator and Storefront

Platform-as-a-service model allows card solution providers to play a greater role in helping retailers market their cards with very little capital expenditure (CAPEX)


Taggo Pte Ltd, a membership card aggregator and storefront, today announced the availability of Taggo’s Web 2.5 platform-as-a-service model for companies which develop loyalty, prepaid, membership, access control and other similar systems dependent on the use of plastic cards.

Taggo’s platform-as-a-service model allows these companies to offer retailers and other organizations the ability to add their card programs to the Taggo storefront, with little or no capital expenditure on the setup and maintenance of servers, databases, storage and networks. Customers can join these programs through a simple SMS text message or by browsing the my-Taggo website (www.my-taggo.com) and tap their phones at the point of sale to enjoy the same benefits as presenting a plastic card, reducing the fat wallet epidemic.

“Companies that offer card solutions are searching for ways to help their retailer customers expand membership and usage, a problem that has grown bigger as people have become tired of carrying cards for every conceivable purpose,” said Aneace Haddad, founder and CEO of Taggo. “The Taggo Web 2.5 platform-as-a-service model allows for these providers to offer an elegant solution with almost no capital costs.”

The loyalty card market is an example of where Taggo can benefit developers, retailers and their customers. U.S. loyalty programs now count 1.3 billion individual memberships, more than four times the total U.S. population. Over 60 percent of these memberships are inactive. And it is becoming harder to enroll new members - average annual membership growth in the U.S. fell from 30% in 2000 to under 6% in 2006 (source: Colloquy). People can’t be bothered filling out yet another form for yet another card that will be left at home, unused.

In Singapore, 86% of retailers feel that the main reason people don’t use their cards more often is that they leave them at home, and 60% feel that the main reason customers don’t join programs is that they have too many cards already (source: Taggo). To attract people that don’t want more cards, 65% of retailers offer sign-up discounts, 60% offer free memberships. Surveys also reveal that virtually all retailers that offer loyalty or prepaid cards want to enroll more customers and increase card usage (93% of respondents).

“The results of these surveys provided us key elements for our value proposition,” said Aneace. “We are confident that our patented technology provides a powerful and simple solution for card issuing organizations, at a cost vastly lower than other mobile tap and go solutions that the industry is exploring.”

Taggo’s patent-pending technology works with all mobile phones and carriers, and is marketed through Value Added Resellers (VARs) that provide membership, customer management, loyalty, gift, prepaid and access card products and services. Taggo's first VARs currently serve retailers across the region, in Singapore, India, Indonesia, Malaysia, the Philippines, Australia, New Zealand and other countries.

VARs benefit in several ways when they integrate to Taggo’s Web 2.5 platform:

• VARs can play a bigger role in helping their customers market their cards to their own customers.



• VARs earn a portion of revenue streams that are charged to retailers when new members sign up for a retailer’s membership program.



• VARs can expand their target market by offering their systems and services to the large number of retailers and other organizations that have not been able to justify issuing plastic cards.

About Taggo

Taggo is a card aggregator and storefront that provides a convenient and affordable way to use a mobile phone to replace plastic membership, loyalty, prepaid and access cards. Customers no longer need to carry as many cards in their wallets, and can join new programs with a simple text message, without the hassle of filling out forms. Retailers can sign up new customers easier, at lower cost, and can achieve higher usage than with plastic cards that tend to be left at home. Taggo’s patent-pending technology works with all mobile phones and carriers. Leading providers of loyalty, membership, gift, prepaid and access card solutions market Taggo to retailers and other organizations as a feature of their products and services. Visit http://www.my-taggo.com for more information.

For more information, please contact:
Aaron Koh
+65 9489 4557
aaron@my-taggo.com

Singapore retailers slow to offer customers the option of paying with contactless cards

This morning, a Straits Time article (see Smart cards not used) describes how many retailers don't see what they would get out of accepting contactless cards.

I have written about this profusely, as early as this morning (see McDonald's swipe to pay - same benefits as contactless, but for all cards).

My blog has a large number of similar entries under the contactless tag.

McDonald's swipe to pay - same benefits as contactless, but for all cards

I paid with my Visa credit card at a McDonald's restaurant in Singapore. With a single swipe, and no signature, the transaction was pretty much as fast as it would have been with a contactless card. How can the contactless tap and go value proposition hold up if you can get the same benefits with traditional magstripe cards that customers already have in their wallets?

Speaking at an MBA Entrepreneurship Bootcamp

This weekend, my friend Cliff Go invited me to speak to a group of MBA students at an INSEAD Entrepreneurship Bootcamp event. I spoke earlier this year at another INSEAD event and also at an SMU event, all here in Singapore, but this one was very different. This time, I spent an hour sharing what I learned in my last startup venture (Welcome Real-time, a provider of credit card loyalty software to banks) and how I am applying that learning to my new venture (Taggo, a tap and go platform for providers of loyalty, prepaid, membership and access card systems and services). Here are the topics I spoke about.

1 - Rolling snowballs

Companies are like snowballs being rolled down a hill: once they’ve been pointed in a direction, it’s really hard to change course. My prior venture was launched in France in 1996 and was acquired in 2007. Where I found it very difficult to change course was … What I want to do better this time is …

2 - So what? Who cares? Why us?

The three toughest questions. Are you doing something important? Who is it important for? Are you selling vitamins, aspirin, or crack? To whom? What if pain is not obvious? Complicated ROI calculations ... Rainmakers and Sales divas ... Why us? Domain knowledge. Experience with similar venture, funding, execution, exit. IP experience and reputation. What are the barriers to entry? Patents, and VAR channel strategies.

3 - What percentage of your company are you willing to give away?

Not the right question - try working backwards: early stage investors want to get 5/7/10x ROI and don't like owning more than 25-30%. What exit valuation needed to achieve that? Credible? “Built to last” versus “Built to flip” … Balance. Who are the target buyers for Taggo? Marketing companies, payment service providers ... Why should companies buy if they can license or partner instead? Who are your target investors? Angels, VCs, strategic investors?

4 - The team

How angels make investment decision: Mgmt team (30% of decision), Size of market (25%), Product/service (10%). Have always managed to attract people passionate about what we were doing because … The type of people that I have had the most trouble finding are … Your larger team … rolling snowballs should be fun.

3 Myths About Credit Card Fees for Businesses

I was interviewed for an article by Matthew Bandyk that was published in US News & World Report. I was asked several questions on interchange.

Q: What about the argument that limiting interchange fees will lead to credit card companies offering fewer rewards and benefits? What about the business side? Are they only benefits for merchants if Congress were to limit interchange fees? Any potential drawbacks? I've read a little about the example of Australia. What kind of regulations did they enact there, and what were the effects? I've also read a little on your blog about how interchange fees affect different kinds of businesses differently--can you give an example?

A: Credit card companies finance their points, miles and other rewards primarily out of interchange fees. Everybody knows that gold and platinum credit cards give more rewards, but very few people know that these cards generate higher interchange fees for merchants to pay. The rewards are financed directly out of those interchange fees. Cutting interchange fees will cause banks to give less rewards, or to find other ways to finance those rewards.

In other countries, whenever interchange fees were cut, there was little evidence that merchants passed the savings on to their customers. The benefits of lower interchange benefit merchants directly, immediately, by lowering their cost of doing business. Theoretically, the lower costs will eventually find their way into the prices that shoppers pay, but that could take a long time. Look at how fast gas pump prices go up when oil is expensive, and how long it takes for prices to come back down after oil goes back down.

In Australia, there were essentially two decisions made to help limit interchange fees. First, the fees were forced to be cut by around half. Second, merchants were given the right to surcharge for the use of credit cards. The result was that credit card companies cut their rewards programs and many merchants began surcharging.

Interchange does not react to competitive forces in the same was as other types of fees. Interchange fees are set by Visa, MasterCard and other card schemes as a feature of each card product that the scheme offers to banks. When a bank is deciding between a Visa or MasterCard logo on their cards, and between one company's platinum card and the other's, it is very tempting to choose the one that provides the highest interchange fees. This competition is what has driven interchange fees higher over the years. Merchants are not part of that negotiation process of course, yet they are the ones that pay the fees. This is where the animosity comes from.

The question is whether merchants receive more benefits from higher interchange cards, like gold and platinum cards, than from standard credit cards. If they do receive more benefits, then they should pay the higher cost of accepting these cards. But today, merchants have no choice to say whether or not they get more benefit and whether or not they will pay more. They must simply accept all cards at the fees defined by the payment schemes, with no recourse other than to no longer accept cards at all.

The payment brands should be competing to provide the best services to merchants to justify their higher interchange fees. This is not happening. And capping or cutting interchange fees will not cause this to happen. However, the threat of surcharging will cause that innovation to finally happen.

Q: When you say surcharging, in the context of Australia, does that mean merchants paying a flat fee for the use of credit cards, as opposed to a fee based on the number of exchanges? What do you mean by "best services"? What's an example of how they could innovate if given the incentive? When you say threat of surcharge, do you mean threat of regulation requiring or allowing surcharges, or something else?

A: Surcharging is the practice of charging customers a fee when they choose to use a credit card. The fee is typically an additional 5% on the cost of the purchase. This is also very common here in Singapore and other parts of Asia, as well as some parts of Europe. In the UK for example, all travel agencies charge customers a 10% surcharge.

Payment brands create lots of new features for their cards, with a focus on customers. Things like guarantees and other features. If there is an incentive to focus on merchants, the payment brands will innovate and create new features and services that make cards more useful and attractive to merchants. This is happening already to a certain extent with marketing services, where merchants can have targeted messages delivered to customers based on their card usage profile, a service that American Express originally offered, and which is now also offered by other brands. Much more work should be happening in this area.

By threat of surcharges, I mean that if a major retailer threatens to begin charging customers a fee for using a specific brand or card type - for example Visa Platinum cards - then there would be strong pressure and incentive for the payment brand to negotiate with the merchant and perhaps promise additional added value in exchange for not surcharging.

Q: Aren't retailers typically prohibited via their agreements with credit card issuers from charging more for customers who use cards?

Yes, yes, that's the problem, that's why merchants are fighting. The credit card schemes prohibit merchants from surcharging. Merchants have challenged that prohibition in many countries, including the US. it's the ability for card issuers to prohibit surcharging that the Australian authorities abolished. They and other governments have found that the credit card issuers abuse their power through those types of prohibitions. It actually started a few years ago in the US when Walmart and other retailers won a major lawsuit that abolished another similar barrier, something called the "honor all cards rule" which required merchants to accept all Visa or MasterCard cards, and not just debit cards for example.

Tap & go gives senior citizens more time to get across roads

Elderly pedestrians get more time to cross roads in Singapore when they tap their senior citizen mass transit cards at specially equipped cross walks. This is a novel use of NFC contactless technology that should help get creative juices flowing for all kinds of potential applications.

See a press article here and here.

Taggo’s first VAR partnerships are about to bring new NFC capabilities to retailers across the Asia-Pacific region

Taggo is about to formally announce value added reseller partnerships that will offer retailers one-step enrolment and mobile tap and go convenience for their membership programs. Four VARs have currently signed up to distribute Taggo. These companies already provide membership, loyalty, discount, gift and prepaid cards and related systems and services to retailers and other organizations that provide cards to customers. In addition to retailer applications like loyalty, Taggo can replace or complement membership cards used in fitness gyms, clubs, and corporate environments such as cafeterias, vending machines, etc. In some cases Taggo will entirely eliminate the need for a plastic card, while in other cases a plastic card will continue being used alongside Taggo.

Taggo lets each VAR continue using their current membership, loyalty and prepaid systems, without changing how those systems calculate and store value, points and discounts. Taggo simply replaces the need for a plastic identity card for each program. So Taggo VARs can offer a new and exciting service to their existing card issuing customers, and can provide solutions to companies that have had trouble justifying cards and getting customers to keep them in their wallets and use them. Integration with Taggo VARs has been designed to be as simple and straightforward as possible.

Taggo's first VARs currently serve retailers across the region, in Singapore, India, Indonesia, Malaysia, the Philippines, Australia, New Zealand and other countries. The VARs include ETP International, Integratech, Memberson and Transactor Technologies.

Loyalty card saturation – the elephant in the room

According to a recent report by Colloquy, each U.S. household has an average of 14.1 loyalty program memberships, up from about a dozen in 2006. However, just 43.8% of those programs are active, translating into 6.2 average active memberships per household. Less than half of loyalty cards are active!

“With the current economic climate, marketers must shift focus from growing their loyalty programs’ size to growing their value,” said the report.

The loyalty industry has been complaining about market saturation for several years already, but has still not come up with a viable solution. The focus always seems to fall back on the same action plan that the report also suggests, “prove program ROI, integrate loyalty data at the enterprise level, and design value propositions that will engage customers of high current and high potential value.”

In other words, engage customers through increased mailings and, especially, juicier rewards. But there are other ways to solve the problem, you just have to look at things from a different angle.

The fundamental problem has a number, provided by Colloquy: 14.1. How can you possibly carry 14 cards in your wallet? That’s just nuts! The most you really want to carry at any one time is also a number given by Colloquy: 6.2, carried by one or two people in the household. And even that number is scary to lots of people.

Loyalty practitioners are fighting an increasingly uphill battle trying to get their card to become part of that privileged few in your wallet. And most are using the same tools - increased mailings and bigger rewards.

Instead, Taggo looks at the problem from a completely different angle: put the cards on your mobile phone so you always have them with you. I am betting my money right now that activation will instantly go up with no need for juicier rewards or more mailings.

A counter-intuitive way to make mobile payments irresistible

Put loyalty and prepaid cards on mobile phones first, which will create the desire to have credit and debit cards as well, integrated into a single transaction. Going the other way, credit cards first, will be extremely challenging. The difference is the value proposition to customers and retailers.

The main promise of putting credit and debit cards onto an NFC mobile phone seems to be, "you can leave home without your wallet". That promise is impossible to deliver until the vast majority of retailers accept NFC payments. Customers still have to carry around their wallet, and, from the merchant’s angle, if customers have other payment methods on them anyway, the value of accepting NFC payments is limited. The promise is empty.

Some other promise is needed. How about, “tap your phone, instead of pulling out your wallet”? That promise can be delivered now, but is it really valuable? The difference between tapping your phone and pulling out a card is questionable in the vast majority of retail environments, except transit. The contactless promise was, “no more lines”, but removing the need for a signature on all transactions under $15 suddenly made traditional magnetic stripe transactions just as fast as contactless. Many people are working at linking the tap and go transaction to interactive information on the handset, to enhance the customer’s experience. Something may in time produce an exciting promise there, but there is a very high likelihood that it turns out that the value is in the application on the handset, and that the promise will be deliverable with traditional payment methods as well.

On the other hand, with loyalty and prepaid cards, Taggo’s promise is, "no more fat wallets". This is a much easier promise to deliver. As soon as one retailer is equipped, that retailer's card can disappear from your wallet. Poof. Gone. Whereas credit and debit cards will stay in your wallet for many years to come.

I see loyalty and prepaid cards going onto phones first, then pulling credit and debit cards on in a second phase. The promise for doing this would be, "no need to pull out a payment card when you use your mobile phone for loyalty".

Loyalty and prepaid programs as mobile content, like ringtones and games

I now look at loyalty programs, discount cards, prepaid cards, and other membership programs as mobile content, very similar to ringtones and games.

The same way that people today send a text message with a key word or code to get a ringtone or game sent to their mobile phone, customers can also add loyalty and prepaid card programs to their phones.

This is a paradigm shift that focuses on getting more people to join more programs. It is a very different outlook to the one that currently dominates the NFC industry where players are struggling with putting credit and debit cards onto mobile phones.

The process requires tremendous simplicity, and produces much greater value to retailers that are struggling to sign up new loyalty or prepaid card customers.

Imagine browsing through the Taggo website looking for new programs to join, and choosing between various retailers that you shop at. Imagine even being able to purchase prepaid promotions, like "Load $25 to your Starbucks Taggo account now, for the promotional price of $20". And the fee gets charged to your mobile account, just like when you buy a new ringtone or game.

This is a vision that is especially relevant to the large number of younger users that are already familiar with purchasing content for their mobile phones.

Hahaha! This innovation stuff is lots of fun!

Taggo now has a website

Check it out here.

Good leaders delegate, great leaders empower

This weekend, during a leadership training course I am doing here in Singapore, I had a breakthrough that helped me finally understand something important about empowering others. Top executives get to where they are by learning to delegate early in their careers. Many of us (raise my hand) tend to confuse delegating with empowering. I have had a nagging feeling for years that I could be much more successful than I am. This breakthrough begins to provide the answer.

At one point, there was a physically challenging exercise that was done in buddy pairs, where the team of two needed to accomplish something that is physically very daunting and scary. The exercise was structured in such a way that one person (me in this case) cannot get across a barrier without the help of the other person. It is designed to help discover how to let go and trust others. I knew my partner was paralyzed by fear and depended on me. I managed to get us both across, even though I should not have been able to succeed. I felt proud and happy, then had comments from many people, including Sally who was watching, about how I prevented my partner from growing and discovering her own courage, and how I had just wasted the opportunity to trust someone else and learn. I didn't understand what they were saying until that night, when it finally became clear.

I can get through the most difficult obstacles. Take my health away, my sight, my money, and I know I can still do big things. I know that I can carry many people with me to success, no matter my limitations. I already know that. And my courage becomes stronger when I am supporting people that act less courageously (or that I think are acting less courageously), as I rise up to fill the gap. I already know that too. This makes me look and feel responsible, big, strong, powerful and courageous. And it has brought a certain amount of success into my life. But I have always felt that I could have succeeded much more, and now through this breakthrough I am seeing how.

What I learned yesterday is that what I am actually doing is draining others of their courage and feeding off of it to build up my own courage. This hit me hard.

This isn't simply a question of delegating tasks and responsibilities. It goes much deeper than that, since it relates to my way of being and the pleasure I get from being responsible and courageous. It is about learning to use one's strength and courage to empower others to find their own strength and courage. I know this sounds simple. I have read about it many times. But there was something about doing this in a structured physical process, and especially with this particular partner, which brought it alive for me in a way that I have never experienced before.

I have always loved this quote from I don’t know where: “Bad leaders, people hate. Good leaders, people love. Great leaders, people say ‘we did it ourselves’.”

Great leaders empower others to find and exercise their own strength and courage.

American Express pays people $300 to drop their accounts

Now here's a new angle. American Express is offering selected customers a gift of $300 if they pay off their balance and drop their account. This is the exact reverse of a sign-up bonus or gift that credit card issuers have been offering for years.

More here.

(Thanks Wan Ling for sending this to me! And Alan Hale too!)

Startup adds mobile convenience and one-step enrolment to loyalty programs

Ok here’s what I’ve been working on. The patent was filed this week, so I can finally talk about it.

Taggo is designed to add mobile tap and go convenience and one-step enrolment to existing loyalty and rewards card programs in a very simple and cost-effective way.

Taggo

View more presentations from aneace. (tags: loyalty contactless)

Faced with the growing proliferation of loyalty cards offering points accumulation, cash back and discounts, retailers are finding it more and more difficult to convince customers to apply for their card and join the retailer’s loyalty program. Many customers already have too many cards in their wallets and prefer not to enroll in new programs. Customers that are already enrolled often leave many of their cards home, causing them to miss out on discounts.

The current method of enrolling customers consists of requiring them to fill out a loyalty card application form, sometimes accompanied by an initial payment or processing fee. The application form can be dropped off at one of the retailer’s stores, the application is processed and the card is sent to the customer by mail. The form can sometimes be filled out at a dedicated service counter in the store and the application processed immediately, allowing the card to be delivered to the customer on the spot so it can be used immediately. Drawbacks with the current methods include the hassle of filling out forms for each loyalty programme, waiting to receive cards in the mail, waiting for the card to be prepared at a service counter, as well as carrying additional cards in one’s wallet.

Many companies are developing ways to use mobile phones to replace all the cards in one’s wallet. An obvious solution is for retailers to re-design their loyalty programs to use the customer’s mobile number as the loyalty card number. But customers that already have the retailer’s existing loyalty card need to somehow transfer their benefits balance to their new mobile phone number ID, and, worse, retailers are required to modify their loyalty card numbering schemes to recognize mobile phone number IDs, something which is often difficult for retailers to do if their loyalty system has been in use for some time. A more elegant solution would be to allow customers to use their existing loyalty card numbers, with no change to the retailer’s numbering scheme, simplifying the process for both customers and retailers. In addition, and more to the point of why Taggo was created, these solutions still require customers to fill out forms and register for each retailer’s program individually, so there is no improvement on current enrollment practices.

Mobile phones equipped with contactless “tap and go” technology offer another partial solution. Referred to as NFC (Near Field Communications) this technology promises to convert mobile phones into payment devices that can replace all the cards in one’s wallet. There are currently two ways of implementing tap and go functionality on mobile phones. One way is to provide small stickers embedded with an NFC chip, that can be attached to mobile phones, while another way is to include the NFC chip as a built-in feature provided with the phone, much like Bluetooth and Wi-Fi capabilities. Both solutions offer some promise, yet both currently fall short of solving the problems addressed by the present invention.

NFC stickers always broadcast the same unique ID, which is essentially the same ID that retailers would normally include on their existing cards. NFC stickers provide a similar solution to that provided by barcodes on loyalty cards and key fobs, as the NFC sticker broadcasts a unique ID similar to a barcode account number. NFC stickers are sometimes even referred to as “NFC barcodes”, even though there is no actual barcode on the stickers. Current NFC sticker solutions (and even barcode solutions) do not simplify and streamline enrolment, as customers must still go through the normal membership application process consisting of filling out and submitting separate form for each retailer and waiting to receive each retailer’s sticker, fob, wristband, etc., and even attaching multiple stickers to a mobile phone. These solutions are simply a different form factor for existing plastic card based programs.

In summary, the practical utility of NFC stickers is currently limited:

Cards, stickers, tags, key fobs, etc., one for each retailer’s programme, need to be physically created and delivered to customers.

Multiple stickers need to be attached to the mobile phone, one for each program.

It is impossible to add new programmes to a phone without adding new stickers.

The enrolment process remains the same, since customers must enrol in each retailer’s programme.

Another partial solution consists of NFC chips built into phones and linked to “mobile wallet” applications that customers download into their phones for payment cards, loyalty cards, coupons and other information. The NFC chip inside the phone is more flexible than NFC stickers, for two reasons: a) the NFC chip inside the phone communicates with the mobile wallet application loaded in the phone’s memory, and b) the NFC chip can be caused to broadcast a different ID, depending on the virtual card that is being presented to a retailer’s point of sale reader.

Personalizing phones over the air with new applications has proven to be quite difficult. Many customers do not have Internet access built into their phones, and most of those that do, have never actually learned to load applications over the air. One solution has been to pre-load applications when the phone is delivered, but then only new customers can benefit.

Mobile wallets require NFC contactless chip capabilities to be built into phones and cannot function with NFC stickers, so they are limited to the few phone models with NFC built in. This is because the mobile wallet application communicates with the retailer’s point of sale system through the integrated NFC chip, broadcasting the customer’s card number for that retailer, rather than the single unique ID that is broadcast by NFC stickers. Since virtually no phones on the market currently have NFC capabilities built-in, the market for mobile wallets is negligible. And since NFC sticker products are unable to communicate with applications within the phone, there is no possibility to make a mobile wallet function with an add-on NFC sticker. Some combined products are beginning to appear, in which a much larger NFC sticker-type solution also includes Bluetooth connectivity to communicate with applications inside the phone, but these solutions are physically more cumbersome and more expensive than simple, thin NFC stickers.

The need to broadcast a different ID at each retailer creates other problems. The retailer’s card ID needs to be injected into the mobile wallet, creating similar difficulties as with over the air downloading of applications. Furthermore, when paying at the cash register, the customer must first open the mobile wallet application on the phone and browse through the virtual cards stored on the phone to pre-select the applicable one. Instead of fumbling through one’s traditional, physical wallet or purse, mobile wallet solutions now ask customers to fumble through their virtual wallets.

In summary, the practical utility of mobile wallets is limited:

Personalizing phones over the air with new applications or new programme data is very difficult.

There are still a very small number of phones with built-in NFC contactless chips.

Mobile wallets cannot function with low cost NFC stickers because there is no communications capability between the sticker on the phone and the mobile wallet application inside the phone.

Customers at the cash register need to open the mobile wallet application on their phones and pre-select the appropriate virtual card when they pay.

It is doubtful that mobile wallet systems could be easily modified to overcome these drawbacks. Using a mobile phone to replace all the cards in one’s wallet has been something of a holy grail, and many people have been working on this, yet none of the current solutions avoid the problems described above. None of the existing mobile wallet solution providers even suggest the possibility of an extremely simple enrolment process, as all of these solutions require a physical connection with the phone for downloading new program data. Likewise, none of the NFC sticker solution providers evoke the possibility of using a single sticker for many different independent programs, despite the number of companies working in this area and the many people that must surely be aware of the drawbacks of requiring customers to attach multiple stickers to their phones.

A unique and innovative combination of some parts of each of these types of NFC technologies could be used to produce a simple and elegant solution when also combined with a smarter contactless reader configuration and another, unrelated technology: SMS text based ordering. Many advertisers invite customers to use SMS text messages to participate in promotions, enter sweepstakes, and request samples. Customers are asked to text their name, address and other details to a special number to participate. This technique of ordering products and services and participating in promotions through simple SMS text messaging does not in itself solve the problems addressed by Taggo, but it does provide an element of the solution when combined with some elements of both NFC stickers as well as NFC chips embedded within mobile phones, in addition to enhancements to current contactless reader configurations.

That’s what Taggo delivers.

Crisis gives national banks an upper hand in payments

I have been thinking a lot about how the crisis is having a different impact on the world’s national banks, which don’t seem to be suffering as badly as the big international players. In the cards and payments business at least, national banks may be able to take advantage of the crisis to get ahead while big international players struggle to survive. Welcome’s customers tend in large part to be national banks, so this is an area that I have been following heavily.

Here are a few comments I pulled out of an interview Friday with Dennis Gartman, producer of The Gartman Letter, a daily commentary on the global capital markets subscribed to by banks, broking firms, hedge funds and mutual funds.

DG: There will be more consolidations; there has to be. But look at the yield curve—what a year to be a bank! The overnight Fed funds rate, the rate banks are going to pay depositors for their demand deposits or checking accounts is zero. And you’re going to be able to lend that out to hungry borrowers at 7%, 8%, 9%, 10% and 12%. The next three years will be the greatest three years banks have ever seen. Banks will just make money hand over bloody fist in the next three years.

TGR: Are you talking about the big boys?

DG: No, I’m talking about the regionals. The big boys have problems in toxic assets. I am not even sure there is a Peoples Bank & Trust in Rocky Mount, North Carolina, but a bank like that—or the First National Bank of Keokuk, Iowa or the First National, or the Peoples Bank & Trust of Park City, Utah—those are the banks that are going to make lots of money.

TGR: Do you see an explosion in regional banks? Will move of them come into the marketplace?

DG: I think we’ve probably got all we need. It’s just that they’re very cheap.

TGR: What will the role of the international banks be?

DG: Mopping up the disasters that they’ve created for themselves for the past decade, trying to survive, being envious of the decent regional banks that are going to be earning enormous yields on this positively sloped yield curve and wishing they were they.

TGR: Do you see a role long term for international banks?

DG: Oh, sure, of course. How could there not be? It’s a smaller world; it’s an international world; it’s a global world. International banks will be back in full force a decade from now. They’ve got some wound-licking to do, and they’ll do it.

The same thinking appears to apply to national banks in the rest of the world, organizations that somewhat resemble regionals in the US, especially in the way they compete with the international banks. I have been watching how Welcome’s customers have continued moving forward with their credit card loyalty programs and in some cases have even accelerated those programs.

Many of Welcome's bank customers have another distinct advantage over the large international banks. They are both major card issuers and at the same time major acquirers, having kept acquiring as part of their banking activities while the international players have gotten out. Consumer shifts from credit cards to debit cards and prepaid will have less of an impact on a bank that is still active in acquiring. More importantly, owning the full end-to-end payment experience makes it much easier for local banks to innovate and provide greater value to customers and merchants.

Keeping issuing and acquiring under one roof suddenly seems much less risky than focusing single mindedly on credit card issuing alone.

Q&A with Shawn Miles, MasterCard: "The continued availability of credit is helping retailers drive transactions"

MasterCard recently published a report, “Benefits of Open Payments Systems and the Role of Interchange.” (direct link, background). I interviewed MasterCard’s Shawn Miles, Group Head, Global Public Policy and Regulatory Strategy Counsel.

Aneace: One of the benefits of interchange is that it helps fund innovation, and we have definitely seen in Australia that lower interchange means lower innovation in the card industry. However, much innovation seems to be focused on benefits for card issuers. Since interchange is paid by merchants, what kind of interchange funded innovation focuses on merchant benefits instead?

Shawn: We think that our payments network itself is a huge innovation that benefits merchants every day considering the complexities and costs merchants would have to undertake to run their own card programs. But one very good specific example of an innovation that benefits merchants tremendously is PayPass, the "touch and go" technology that provides merchants who benefit from improved speed of transactions, like fast food restaurants, transit systems, vending machines or taxis. Our Time and Motion study indicated a 52% increase in speed over cash payments. Not only do merchants benefit from the increased speed of people moving through their stores, but research shows people spend more when they use PayPass - and even New York City taxicab drivers are admitting they're getting higher tips when people use PayPass.

Aneace: Given the credit crisis today, and given the loss of revenues that many retailers are now facing, one could imagine two very different scenarios regarding interchange. One would be that merchants will now fight even harder to reduce their costs and cut interchange fees. But another opposite scenario might be that merchants will be more open to paying interchange fees for transactions which they might not have made if cards were not available. Which scenario do you see playing out?

Shawn: Some merchants may only want to focus on cost, rather than benefits. We certainly recognize that, particularly in this environment, everyone wants to lower their costs of doing business. But you're absolutely right that the continued availability of credit is one of the things that is helping drive transactions, even more so in this environment than in general, and we would hope that some merchants will recognize the benefits they're receiving from accepting payment cards. One of the reasons we produced this brochure is to remind people, including merchants, of the enormous benefits that open, four-party payments systems bring to the economy and society.

Aneace: Retailers seem to understand that there are costs involved in offering card payment services, and say that they are willing to cover a certain level of interchange for those costs. However they don’t like the idea of card issuers using their interchange revenues to fund their own loyalty and rewards programs. How do you see this trend evolving, especially given the current financial climate?

Shawn: Merchants are the ultimate beneficiaries of so-called "premium" cards, as there's ample evidence that people who use them spend more, so merchants’ revenues are higher. According to Nilson Report issue #898 from March 2008, as part of a report/article on “Merchant-Funded Rewards Programs”, “the average monthly spending on a credit card with no rewards program is $465. That figure increases to $890 for a rewards card.” So the Nilson data shows that the affluent shoppers who use these cards spend, on average, double what people using standard cards spend. That's a pretty big benefit for the relatively low cost of acceptance.

The interchange wars are over … for now

Many people have been after me for not keeping up with my blog. When the crisis hit everything changed. Things I was writing about suddenly seemed less relevant. Today, I can see more clearly that there are still many topics that are relevant, and even more so now, while there is at least one really big thing that is much less relevant. Interchange wars.

One could imagine that some retailers might fight even harder now to reduce interchange, but I don’t believe that this will be the case. Instead, retailers are happier than ever to have a customer come in and buy something, even if they must pay interchange, which now seems like a pittance in comparison to the huge discounts that they are giving. I’ve heard recently that stores all over the UK are offering 70% discounts.

In a sense, we are going back to the original benefit of credit cards for retailers a few decades ago, where retailers were happy to pay 5% or more for facilitating a fully paid purchase. Now that credit is harder to come by, a credit card customer suddenly becomes much more valuable than a few months ago. And a premium card customer even more so, justifying the even higher interchange fees on premium cards.

I also explored this topic in an interview with MasterCard’s Shawn Miles, Group Head, Global Public Policy and Regulatory Strategy Counsel. Watch this space.

I am a very stubborn man. Those who know me will tell you so. But hey, I'll change every once in a while when something big comes along. It's my blog, right?

Crisis: much of the traditional thinking in rewards programmes will be useless

Banks have already substantially cut credit limits and it seems obvious that they should be giving out fewer cards than in the past, but you can’t really tell this with all the credit card marketing still happening in Singapore’s shopping districts. Will banks continue promoting card usage and credit consumption as the crisis grows, or will rewards programmes now focus much more heavily on other objectives?

In the past, banks targeted ‘revolving’ credit card customers as a key revenue driver. However, the credit crisis is reversing this process and banks are keen to boost their deposit base. This could create a new loyalty model where financial institutions reward consumers depending on the level of funds deposited with them, instead of encouraging more credit card usage. Some banks will likely dabble in this, but it will take a while for any type of mainstream development to come out of it.

Another impact of the crisis could be the final, total separation of card payments from other banking activities, where payment processing becomes even more of a third party activity, leaving card issuing and customer account management alone within the bank's walls. This would further highlight the imbalance of costs, where the majority of fees paid by merchants flow to the issuer and leave such a tiny amount with processors that no real merchant-centric innovation is currently possible. When was the last time you saw a meaningful R&D line on an acquirer or processor's P&L statement?

The December issue of Lafferty Cards Insider has an article on redefining rewards in today’s credit crisis.

“As the global financial crisis escalates, loyalty service providers are facing growing pressure to overhaul their rewards programmes by cutting costs wherever they can. Greater scrutiny of interchange fees is further intensifying the pace of change, which is likely to result in alternative funding strategies and an increased focus on retaining ‘good’ customers.”

A very interesting article.

In the meantime, I am putting more and more of my energy into my new loyalty related start-up project that helps retailers deal with the crisis better.

Mobile tap & go loyalty wallet - market research survey

I have just finished compiling the results of an early, exploratory on-line survey I ran recently here in Singapore, testing the market for a mobile tap & go startup project that I am working on. Then, bang, synchronicity! I just got an e-mail from Aite Group on a survey they recently did in a similar area.

My survey explores how customers deal with lots of retailer loyalty and discount cards, and the hassles of carrying around an increasing number of cards, while the Aite survey “provides insight into the demographics and attitudes of consumers who choose credit cards based on rewards programs, and sheds light on the other factors that drive consumers to select one card over another”. Basically, the difference in focus being retailers versus financial institutions.

Aite suggests that card issuers need to create a more convenient product for customers in which a single bank card can aggregate lots of different programs:

"It is clear that most rewards cardholders possess multiple rewards cards," says Ron Shevlin, senior analyst with Aite Group and author of this report. "As issuers look to one-up each other with ever-expanding rewards, Aite Group believes that there's an opportunity for issuers to differentiate themselves by creating a rewards hub that enables cardholders to aggregate and integrate programs."

I agree with the general premise of this advice, but I don’t believe that a financial institution can offer a truly convenient solution to the problem. Hence the work I have been involved in.

Want some of the results of my survey? It turns out that 70% of shoppers in Singapore have over 3 loyalty or discount cards, and 40% have over 5. Those tend to be almost exclusively women, almost 9 in 10. Men simply can’t carry around lots of cards in their wallets, unless they start carrying purses.

People with lots of cards are definitely interested in solutions to the fat wallet problem. 56% of these customers declared that they would be “very interested” in a mobile tap & go wallet that would let them register all of their loyalty cards on their mobile phones, so that they can just tap their phones when they shop instead of presenting their cards. In the future, I want to look at men’s behavior more specifically, to see if interest in joining lots of retailer loyalty and discount programs would go up substantially if fat wallets (and purses) are no longer needed.

Oh yeah, here’s an important piece of data: a huge 62% of loyal shoppers declared that they would be “very likely” to prefer shopping at a store that allows them to tap their phones, versus a similar store that requires card presentation. Retailers that make it easier to participate in their loyalty programs will clearly attract more customers. Some retailers will take this insight and try to create a mobile wallet that only supports that retailer’s loyalty card, which is already being talked about in Europe with some of the largest retailers. Those projects will ultimately fail because only the most loyal customers will dedicate their mobile phones to a single retailer. But hey, you know that some big retailers will absolutely have to spend lots of money trying to do that, right?

Aite is selling their survey for lots of money. Mine was done for my own use, but if you want to buy it let me know and I’ll dress it up a bit like the big analysts do and sell it to you real expensive. Just kidding! (Well sort of, contact me here if you’re interested in what I’m working on).

Report: Rewards programs are even more crucial for credit card issuers today

Research firm Aite Group has just produced a report on how the credit crisis will make credit card rewards programs even more crucial than they already are. Instead of simply saying that credit cards are the next bubble to burst and how customers are moving away from credit cards, this report attempts to go into more depth and starts to offer some visibility as to what the industry may look like once the dust settles.

"Credit card issuers are going through their most turbulent times since the introduction of credit cards. Potential new legislation and regulation threatens to reshape their business model, and issuers are facing rising charge-offs and a continued assault from merchants lobbying to cap or reduce interchange rates. Meanwhile, issuers must continue to deal with day-to-day challenges, such as new customer acquisition, card activation, and customer retention and card usage. In that context, issuers expect rewards to remain front-and-center to their strategy - notably merchant-funded rewards that alleviate issuers' reliance on interchange funding."

Phone wallet - do I need one?

Here's an interesting article in NetworkWorld, titled I need a 'wallet phone' why?

"Last night on my drive home I stopped at a Boston Market take-out restaurant and here's how I paid for my family's dinner: I handed the counter clerk my American Express, she swiped it through a card reader, and handed me a receipt. There was no PIN to enter and nothing to sign. Couldn't have taken 15 seconds.

"Would waving my cell phone at a wireless reader have been easier? Not for me, because I don't normally carry my cell phone. But, yes, I suppose those who do might have shaved a few seconds off that less-than-15-second transaction.

"And what's the value of that? About as close to zero as I can imagine."

Building true loyalty - helping customers when they really need it

Here's a positive thought after this past week. A veteran banker writes:

"We need to stop for a moment and recognize that even if we do have the biggest challenge since the Depression, it has also presented us with possibly the biggest opportunity to build relationships with our customers that we’ll ever see.

"When I was a very young banker in the 1970s, I spent some time trying to sell small family businesses on the idea of moving from Bank of America to the community bank for which I was working. I heard more than once that they wouldn’t do that because during the 1930s depression, A.P. Giannini loaned them, or their parents, money that helped them stay in business. They still remembered it 40 years later.

"Now it’s your chance and your opportunity. Helping customers when they really need it – isn’t that why you got into banking to begin with?"

Check out the full blog post here.

EFMA 2008 conference presentation, Paris

Here's the presentation that I gave at the EFMA conference yesterday.

Haddad Efma Sept 2008

View SlideShare presentation or Upload your own.

A water pipe broke in the ceiling right above my head while I was waiting for my turn to speak, delaying the conference by 45 minutes and drenching my suit jacket and shirt. Maybe I should tone down all the talk about interchange!

Interchange regulations make credit card surcharges increasingly common

If you want to see the real-world impact of interchange regulations, the best place to look is obviously Australia. This is a country where the most sweeping changes to the interchange model have taken place, a country seen by regulators everywhere as something of a model to learn from.

If you can’t go to Australia to learn first-hand (maybe you've been trying to convince your boss to let you go, but he hasn't said yes yet), another way would be to look at the work of Australian research firm, East & Partners. They recently released a report, titled Australian Merchant Acquiring & Cards Markets, which shows how bad surcharging on credit card transactions has become. (See the report brochure here and the firm's press release here.)

“Surcharging is most common at the top end of town where up to 26 percent of merchants have already introduced surcharges and a further 38.7 percent are planning to do so in the coming months. In theory, the rise in surcharging should produce a shift from credit cards to other forms of payment which are relatively less costly.”

I’m looking forward to seeing the firm’s next report, which I imagine would begin to show whether or not this shift actually happens in a meaningful way.

"Dang it, Aneace!" you say with understandable anger. "Now I definitely can't convince my boss to let me go to Australia!"

Why do some merchants make you sign twice?

This is something I am running into more and more frequently. The clerk asks you to sign both the credit card slip as well as the cash register receipt. Presumably, they need to keep the signed cash register receipt to deal with chargebacks. There could be an opportunity here for a payment provider to offer a better service to retailers so that they don't feel they need to do this.



Even worse, the other day a major (and reputable) retailer in Singapore actually typed in the CVV number on my card that proves that the merchant did actually see the card. The number was typed into the POS terminal provided by the merchant's bank, so the bank is involved in this.

Why aren't payment providers solving these problems for merchants in a cleaner, more convenient way?