EMV cards have been in the spotlight this year, with JP Morgan Chase, U.S. Bank, and Wells Fargo making announcements of portfolio migration from magnetic stripe cards to plastic that carries both mag stripe and a “chip”.

Market leading loyalty researchers, Colloquy, featured chip cards in the U.S. in their most recent issue, interviewing Randy Vanderhoof, the long time leader of the Smart Card Alliance, for insight into the wave of change hitting American shores.

Emerging from the smart card discussion, there are two key topics for debate.

1. Over what time period will U.S. migration to EMV take place and at what cost?

2. Will the widespread adoption of EMV cards by U.S. issuers represent a launching pad for loyalty program innovation?

Funny thing how history repeats itself:

• In 1996, Geno Pandolfi, a brilliant creator of payment and loyalty solutions who operated well ahead of his time, developed a smart card interface for his loyalty software, Cobrasys. The solution became part of the many smart card pilots trialed by Visa in Latin America during the late 90’s, and was the operating platform for the Bonus coalition loyalty program in Peru.
• During a 5-6 year stretch between 1998 – 2004, I attended the annual Smart Card Forum which brought together vendors and solutions providers focusing on bringing innovation to the payments business. Randy Vanderhoof was a prominent part of those discussions – most of which were addressing the same questions I have noted above. During those events, I tried on George Jettson-like Java-enabled rings that could be passed before chip enabled readers at POS and bought sodas at the conference events with my smart card loaded with a prepaid purse.
• During my years with Frequency Marketing through 2005, Jim Kuschill, the “godfather” of loyalty processing software technology (in my book at least) invested countless hours to understand what marketers could deliver to consumers in the way of loyalty via Chip that couldn’t be done with a mag stripe. The answer – not much.

Now, it seems, we’ve gone “back to the future” and are opening a similar debate once again. If you’re interested in a “Loyalty Lifehack”, I’ve got one for you:

• EMV cards are being introduced in the U.S. because the case to reduce fraud is so overwhelming that card issuers have no choice
• Trying to create buzz about EMV from a loyalty standpoint is peripheral to the discussion as the real debate is about cardholder protection and payment card utility.

You see, as the U.S. is the last significant nation in the world to adopt the EMV standard, the fraudsters have come to our shores to take advantage of the easiest mark on the globe. Add to that Americans traveling abroad are increasingly targets of fraud as they have only mag stripes cards to use, and the utility issue comes center stage.

Richard Sanders sounded this alarm in 2006 at the last Smart Card Forum which I attended. Richard is a globally recognized payments and loyalty expert, having run the credit card centre of excellence at Visa EU, launching the first “chip and pin” card program in the UK with Abbey (now part of Santander) and now sharing his wisdom with clients of ACI Worldwide, where he serves as a Solution Consultant. ACI recently published a comprehensive loyalty survey based on the retail field which garnered much attention in the press.

During a talk about loyalty and chip cards, Richard told a packed room that “whether they liked it or not” chip cards would come to the U.S. sooner than later. Richard predicted the timing of the introduction would correspond with the migration of other nations to the EMV standard, leaving the U.S. alone as the world’s “fraud magnet”. Some delegates listening scoffed at the idea, responding that our low-cost, always-on communication systems negated any benefits from EMV.

It took a few years for the prediction to come true, but Sir Richard was right. EMV is coming soon, and with the current legislative pressure on swipe fees, we may well see a Chip and PIN model taking hold just as it did in European markets. Whether the eventual form factor is based on contact or contactless acceptance at POS is another subject for debate.

To the question of whether EMV will spell differentiation for loyalty marketers, please don’t bet the farm on it just yet. One reasonably successful example that I have seen is BBVA Bancomer’s migration of its Puntos Bancomer program to Vida Bancomer circa 2006. That program used its new EMV capable cards to carry a purse of loyalty points which could be redeemed with merchants as part of a purchase transaction.

The success of that program was largely made possible through the fact that Bancomer not only was one of the largest issuers in Mexico but also a leading card acquiring organization. With the entire processing, authorization, and settlement lifecycle under its roof, Bancomer was able to recruit merchants to participate, and added some zip to a program originally motivated by the EMV migration.

What’s ahead? Maybe you should have Richard Sanders on speed-dial as he has been living with EMV and Loyalty for the past 10 years.

My guess is this:

For Payments: Count on the mag stripe co-existing with chip for the next 3-5 years and then gradually phasing-out. The speed at which terminal conversation can take place and the determination of “fallback” policies will dictate the horizon.

For Loyalty: Some loyalty programs will use available real-estate on the chip to facilitate instant redemption and other “in the moment” rewards, but look for more powerful innovation through mobile, social, and location enabled paths.

Feeling “chippy” about the subject? It’s a complex subject, so drop a comment and spark the debate!

In the midst of holiday preparations, you might have missed the Cards and Loyalty Payment Conference held in New York on December 2.  I was able to attend in my capacity as North American Contributing Editor of the Wise Marketer and filed this report with the WiseMarketer.

Source Media’s second annual ‘Cards and Payments’ loyalty conference was held in New York earlier this month, addressing the theme of ‘the intersection of cost management and rewards programme repositioning’, as detailed here by The Wise Marketer’s contributing editor, Bill Hanifin.

The proceedings began with Rob Rosenblatt of Chase Card Services, who presented an overview of Chases’ new flagship rewards programme, ‘Ultimate Rewards’, which is offered on Chase Freedom as well as the new Chase Sapphire and Chase Ink (small business) products. Launched earlier in 2009, Ultimate Rewards was built as a unified platform that would help drive customer engagement while improving operating efficiency and also strengthening the brand.

An expert panel debated cost-per-point reduction strategies, with experts from SunTrust Banks, Merrill Lynch, Wyndham Hotels and US Bank explaining a variety of techniques that can be used to lower cost-per-point while keeping programme members engaged with the brand. The panel concluded that forming strategic partnerships with providers, using redemption targeting campaigns, and fine tuning programme rules should all lead to positive results even in a tough economy.

Crista Dewire and John Kryczka of PriceWaterhouseCoopers offered an in-depth discussion of loyalty programme liability management, outlining the actuarial methods used to project redemption rates and help programme operators manage liability. They pointed out that, while no conclusions have yet been reached on the treatment of loyalty liability within Generally Accepted Accounting Principles (GAAP), another body – the International Financial Reporting Standards (IFRIC) – has issued guidelines for currency management that are quite restrictive and could potentially impact the future of the loyalty industry.

Indeed, loyalty operators in Singapore, New Zealand, and Australia have already felt the effects of the IFRIC standards as they must now account for points on a “fair value” basis rather than actual internal cost. In addition, the guidelines mean that companies must account separately for the award portion of each sales transaction. The end result of these guidelines is to defer revenue and increase point cost, squeezing margins for loyalty marketers. It was concluded that loyalty software suppliers will also feel the impact of these guidelines because they will need to track every point issued with a time/date stamp, and be able to process redeemed points on a FIFO (first-in-first-out) basis.

Geri Green of Barclaycard US shared a number of loyalty strategies that should not be forgotten in tough economic times, including the principles of transparency, consistency, value, messaging, and trust. Rick Ferguson of Colloquy and Andrew Pyper of Saks Fifth Avenue presented a case study showing how retailers can use store charge cards as points-earning accelerators for programme members.

US Bank senior vice president Bob Daly explained how the bank reacted to the merger of Delta and Northwest Airlines by launching ‘Flexperks’ – a travel rewards programme designed to retain its portfolio of cardholders from the Northwest Worldperks programme that was being closed down. Daly noted how the bank had included benefits specifically to help cardholders with unbundled air travel, such as offering an ‘allowance’ with a redeemed ticket to help pay for baggage and seat selection charges. He also mentioned that employee training in the call centre had been a subtle but important key to the success of the programme.

The event ended with a discussion of the proliferation of debit card rewards programmes. According to research from First Annapolis Consulting, 53% of the top 100 debit card issuers already have debit rewards programmes, although there is a contrast in penetration by bank size (90% of the top 20 issuers offer debit rewards, while only 35% of the remaining 80 issuers do so).

The structure of debit rewards is also evolving along a line that begins with generic rewards (e.g. points or cash-back) and heads toward cobranded rewards (e.g. with airlines) and relationship rewards. It seems clear that US debit card issuers are anticipating the continued growth of debit card transaction growth and sales volume, and are crafting increasingly sophisticated rewards programmes to help drive consumer engagement, card usage, and to gather deposits.

This article is copyright 2009 TheWiseMarketer.com

In the midst of holiday preparations, you might have missed the Cards and Loyalty Payment Conference held in New York on December 2.  I was able to attend in my capacity as North American Contributing Editor of the Wise Marketer and filed this report with the WiseMarketer.

Source Media’s second annual ‘Cards and Payments’ loyalty conference was held in New York earlier this month, addressing the theme of ‘the intersection of cost management and rewards programme repositioning’, as detailed here by The Wise Marketer’s contributing editor, Bill Hanifin.

The proceedings began with Rob Rosenblatt of Chase Card Services, who presented an overview of Chases’ new flagship rewards programme, ‘Ultimate Rewards’, which is offered on Chase Freedom as well as the new Chase Sapphire and Chase Ink (small business) products. Launched earlier in 2009, Ultimate Rewards was built as a unified platform that would help drive customer engagement while improving operating efficiency and also strengthening the brand.

An expert panel debated cost-per-point reduction strategies, with experts from SunTrust Banks, Merrill Lynch, Wyndham Hotels and US Bank explaining a variety of techniques that can be used to lower cost-per-point while keeping programme members engaged with the brand. The panel concluded that forming strategic partnerships with providers, using redemption targeting campaigns, and fine tuning programme rules should all lead to positive results even in a tough economy.

Crista Dewire and John Kryczka of PriceWaterhouseCoopers offered an in-depth discussion of loyalty programme liability management, outlining the actuarial methods used to project redemption rates and help programme operators manage liability. They pointed out that, while no conclusions have yet been reached on the treatment of loyalty liability within Generally Accepted Accounting Principles (GAAP), another body – the International Financial Reporting Standards (IFRIC) – has issued guidelines for currency management that are quite restrictive and could potentially impact the future of the loyalty industry.

Indeed, loyalty operators in Singapore, New Zealand, and Australia have already felt the effects of the IFRIC standards as they must now account for points on a “fair value” basis rather than actual internal cost. In addition, the guidelines mean that companies must account separately for the award portion of each sales transaction. The end result of these guidelines is to defer revenue and increase point cost, squeezing margins for loyalty marketers. It was concluded that loyalty software suppliers will also feel the impact of these guidelines because they will need to track every point issued with a time/date stamp, and be able to process redeemed points on a FIFO (first-in-first-out) basis.

Geri Green of Barclaycard US shared a number of loyalty strategies that should not be forgotten in tough economic times, including the principles of transparency, consistency, value, messaging, and trust. Rick Ferguson of Colloquy and Andrew Pyper of Saks Fifth Avenue presented a case study showing how retailers can use store charge cards as points-earning accelerators for programme members.

US Bank senior vice president Bob Daly explained how the bank reacted to the merger of Delta and Northwest Airlines by launching ‘Flexperks’ – a travel rewards programme designed to retain its portfolio of cardholders from the Northwest Worldperks programme that was being closed down. Daly noted how the bank had included benefits specifically to help cardholders with unbundled air travel, such as offering an ‘allowance’ with a redeemed ticket to help pay for baggage and seat selection charges. He also mentioned that employee training in the call centre had been a subtle but important key to the success of the programme.

The event ended with a discussion of the proliferation of debit card rewards programmes. According to research from First Annapolis Consulting, 53% of the top 100 debit card issuers already have debit rewards programmes, although there is a contrast in penetration by bank size (90% of the top 20 issuers offer debit rewards, while only 35% of the remaining 80 issuers do so).

The structure of debit rewards is also evolving along a line that begins with generic rewards (e.g. points or cash-back) and heads toward cobranded rewards (e.g. with airlines) and relationship rewards. It seems clear that US debit card issuers are anticipating the continued growth of debit card transaction growth and sales volume, and are crafting increasingly sophisticated rewards programmes to help drive consumer engagement, card usage, and to gather deposits.

This article is copyright 2009 TheWiseMarketer.com