Dec 7, 2006

How US banks can use contactless to compete more effectively against alternative payment provider Pay By Touch

Biometric payments company Pay By Touch yesterday announced that it has acquired retail loyalty programme operator S&H Solutions and its parent company S&H Greenpoints for over US$100 million in cash and stock. Cardline reports that “the combination gives Pay By Touch an edge when competing against technology like contactless payments.”

According to the press release, “Many years and more than $200 million dollars have gone into developing the company's real-time marketing technologies, including a highly sophisticated analytical engine that enables retailers to deliver one- to-one consumer messages in-store through multiple proprietary platforms.”

The S&H system requires a dedicated server installed within each store. The server manages behaviour data related to a customer’s transactions at that store, so that messages can be targeted based for example on the number of visits or dollars spent.

US banks have a potentially much more powerful solution with the contactless cards that they are issuing. Contactless cards are chip cards, so they can do much more than traditional magnetic stripe cards. Check out my prior post on how Welcome manages the same type of data within each card’s contactless chip as Pay By Touch does on servers installed in each store.

With contactless cards, there is no need for an in-store server. Each card carries all the necessary data. Plus, promotions can be across multiple stores. “Eat at any San Francisco McDonald’s restaurant 3 times in the same week and get a free meal.” With Pay By Touch’s solution, they would have to convince McDonald’s to install a server in each store (a major challenge, which is probably why S&H is only installed in supermarkets), and they would be limited to single store promotions. “Eat 3 times this week in this restaurant and get a free meal.”

Right now, US card issuers are entirely missing the point. They are touting the speed benefits of contactless, something which is easily replicated with traditional magstripe cards where all you need to do is eliminate the need for a signature. Worse, Pay By Touch is possibly even faster than contactless because the customer doesn’t have to pull a card out at all. So the whole speed angle actually plays into Pay By Touch’s strengths and works against banks.

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