Jul 3, 2006

Critical mistake #2: Start with a pilot

(This post is part of the series on key success factors and common mistakes.)

Pilots all suffer from the same drawback: lack of places for customers to use their card and not enough customers for merchants to see a difference in their total revenues.

The Manhattan smart card pilot jointly run by Citibank, Chase, Visa and MasterCard was one of the most highly publicized examples of this problem (another one was the Target pilot, but more on that in a future post). The Manhattan pilot ended in 1998 after only one year. Residents where the trial took place couldn’t use their smart cards when they went to work in other parts of Manhattan. Most consumers never reloaded their cards with electronic cash and two-thirds of the merchants dropped out during the trial. Since customers still had to carry cash for most places that they shopped at, the promised benefit of eliminating cash was never achieved.

Pilots are sometimes useful for demonstrating that the technology works, but they are useless for testing the value proposition to merchants and cardholders. Even worse, pilots make your strategy obvious to your competitors, giving them the ability to get to market before you by skipping the pilot phase. This is exactly what happened very recently in an Asian country I won't name, because the events are too fresh.

Now that EMV is gaining speed, we see fewer banks looking at doing smartcard pilots. Most are going straight to deployment. The biggest change is the liability shift. This has caused the market to move from one dominated by “visionaries” to one dominated by “pragmatists”.

In the past, the banks that launched smartcard projects were for the most part piloting the technology, playing around with it, without actually embarking on true large scale deployments. That period was dominated by “visionaries”, people who saw breakthrough potential in smartcards and funded custom developments that matched their needs, without insisting too heavily on a fast ROI. Those people were sometimes attracted to fancy technology for the sake of technology.

Today, the market is increasingly dominated by “pragmatists”, people that want a standard product that works, with the least amount of effort. And they want their investment to produce value immediately. This is very good for Welcome. It has contributed heavily to our strong growth over the past couple of years. People are wasting less of their energy on fancy technology and are looking instead for serious solutions that address real business pains.

3 comments:

Citizen Dave said...

It's also worth mentioning that in focus groups for the Manhatten pilot, the top three places that consumers wanted to use their smart cards were subway, payphone and parking meter: not one of these was included in the pilot.

Colin Henderson said...

I was wondering if the only other aspect that piloting deals with is to ensure that the system works as intended prior to full launch. This isn't a pilot per se, but a prelaunch test.

Aneace Haddad said...

Yes, the main objective of a pilot is usually to make sure the system works as intended. It's the definition of "works as intended" that can cause problems. If the concern is technical in nature (i.e. does the technology actually work when it is deployed?) then a very quiet launch would be better, exactly what you are calling a prelaunch test. If instead the concern relates to merchant and cardholder acceptance, then scale becomes an issue and a pilot makes no sense.