Smart Cards Go To The Front Of The Line

With the help of loyalty-based smart-card programs, retailers and banks are hoping to increase spending and boost customer retention.

For solution providers, the promise of smart-card technology may lead to increased revenue despite flagging POS terminal sales, said analysts and industry watchers.

Up until now, smart cards haven't made much headway in the United States, said O.B. Rawls, president of the North America division of Hypercom, Phoenix. "The U.S. telecommunications infrastructure is widespread and operates at affordable rates. That's allowed magnetic stripe cards to function very well at the point of sale," said Rawls. "But today there are two main drivers behind smart-card technology: adding value at the POS and fraud on the Internet."

One way to add value at the POS is with loyalty programs that keep customers coming back for more, said Daniel Tardif, president of Cyberpro Technologies, a Montreal-based provider of smart-card-based solutions. In March, Cyberpro merged with Welcome, a France-based developer of smart transaction platforms.

Many retailers across the United States already have loyalty programs in place, allowing customers to accrue "points" through purchases and redeem them later on. But smart-card-based loyalty programs offer benefits that stripe or bar-code systems can't, said Tardif. "Mag stripe cards can be duped easily. Smart cards deliver a more secure solution," he said. "And with smart cards, there's no need to upload transaction information to a server. A chip on the card allows for realtime transactions and realtime receipts."

In addition, smart cards can store the loyalty programs of up to 30 merchants, so customers don't need to carry multiple cards, said a spokeswoman at Hypercom.

"The main reason why smart cards aren't as popular as they could be is that card issuers aren't pushing them," said Rawls. "If you put smart cards in the market, the infrastructure will follow."

Meanwhile, Hypercom continues to advocate smart-card usage. The company, which relies on solution providers to help further its cause, has deployed 150,000 smart-card-enabled POS terminals so far.

"What you're doing with smart cards is distributing the database down to the chip," said Bill Biwer, president of Smart Card Solutions, an integrator and Hypercom partner based in Hartland, Wis. "You're running loyalty and gift card programs right out of the terminal,without a back-end processing and tracking system."

Biwer said Smart Card Solutions is starting to see interest in chip-based loyalty programs in practically every U.S. region. "Right now, we're targeting mostly merchants with one to 25 locations,mom-and-pop shops. But our software and solutions are scalable and could move up to the bigger retailers too," Biwer said. The integrator's customers include Cosmetics by Andrea, Boca Raton, Fla., and Chalet Motel, Lewiston, Maine.

Cyberpro, too, is jumping into the smart-card space with both feet. In October 2001, the

company unveiled its Northern Friends Rewards Program to Northern Group Retail. Membership in the loyalty program has grown an average of 16.5 percent each month to more than 520,000 members.