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Table of Contents

Lead Story

Think technology and loyalty for the holidays

News

Industry Update

AmEx, the DOJ settlement holdout

PCI SSC's latest: P2PE guidelines

ALDI breach may highlight fraudster M.O.

Trade Association News

Features

Keeping merchants in the know

Selling Prepaid

Prepaid in brief

Prepaid profile: Prepaid Solutions Inc.

How regulations can help prepaid

Views

Interchange: Matching loyalties and realities

Patti Murphy
The Takoma Group

Does PayPal's new offering actually mean anything?

Ron Osborne
Salus-Novus Inc.

Education

Street SmartsSM:
Making VAR relationships work for you

Ken Musante
Eureka Payments LLC

Think before you send

Dale S. Laszig
Castles Technology Co. Ltd.

HIPAA and PCI: How do they compare?

Nicholas Cucci
Network Merchants Inc.

Budgeting: A crucial management skill - Part 2

Vicki M. Daughdrill
Small Business Resources LLC

Company Profile

TriSource Solutions LLC

New Products

Automated, but not ignored, billing

Information & Analytics Services
First Data Corp.

Inspiration

Opening doors through community service

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

October 25, 2010  •  Issue 10:10:02

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Think technology and loyalty for the holidays

Capturing the all-important consumer spend this holiday season will be challenging for brick-and-mortar merchants faced with value-conscious shoppers equipped with product information from the Internet well before they set foot in a store. However, while technology has changed the context of commerce, the new landscape offers rewarding opportunities for merchants to connect with consumers on a personal level.

The prevailing theme emerging among forecasters for the approaching 2010 holiday period is cautious optimism. According to Deloitte LLP's retail group, from November 2010 through January 2011, total holiday sales are expected to reach $852 billion, excluding vehicles and gasoline. Deloitte's projection reflects a gain of 2 percent over the same period last year. The company expects much of that growth to come from online and nonstore sales.

Taking a similar stance, the National Retail Federation projects a 2.3 percent year-over-year increase in sales for November and December 2010, compared to just 0.4 percent for the same two months in 2009 and a decline of 3.9 percent in 2008. Even then, year-end holiday sales for 2010 could fall short of the $452.79 billion posted in 2007 before the recession hit.

Aligning technology initiatives

Industry experts agree that harnessing technology is increasingly critical for the long-term survival of small and midsize brick-and-mortar establishments. And many retailers acknowledge the importance of technology as evidenced in a report published by Forbes/Insights, in association with CIT Group Inc., titled U.S. Small Business and Middle Market Outlook 2010 - Retailers and Their Suppliers: Smarter. Leaner. Cautiously Optimistic.

The report states that technology initiatives topped the capital expenditure priority list for U.S. retailers in three of the top four categories. Among them, expanding Internet channels ranked highest at 47 percent, while 30 percent said funding POS initiatives was most important, and 27 percent indicated developing mobile initiatives as a top priority. So what can ISOs do to help retailers embrace technology in an increasingly competitive environment?

"There is some really low-hanging fruit when it comes to mobile that I'm surprised more retailers haven't taken advantage of," said Jim Crawford, Executive Director of the Global Retail Executive Council. "It's not horrendously complicated to make your website's product information mobile accessible. Any retailer that hasn't done that is really behind the curve at this point."

According to a recent survey conducted by Internet Retailer, early adoption of mobile commerce websites among 149 retailers surveyed was at 8.8 percent; however, 75.9 percent of respondents plan to launch such sites, of which 52.6 percent intend to sell through mobile phones within 12 months.

Crawford suggested stores add new technology, like QR codes, which are two dimensional matrix codes similar to bar codes, or Microsoft Corp's mobile bar code technology, Microsoft Tags, to allow shoppers to connect directly with merchants' e-commerce sites from the products they're viewing in the store.

If a merchant is out of stock, the shopper isn't left with an empty shelf and no alternatives. Deploying such technology so shoppers can visit a designated web page while in the store is something he believes retailers should focus on, even for the 2010 holiday season.

With most retailers focused on mobile marketing, mobile commerce has progressed more slowly than anticipated, Crawford reported. "There hasn't been as much movement toward the actual commerce side of it," he said.

"I think that's something that's going to bite a lot of retailers this holiday season, because shoppers are going into their stores expecting to be able to use their phones as part of the shopping experience." He believes that if shoppers cannot do so, they will shift to more aggressive competitors.

"The fact is that a lot of the e-commerce players, and Amazon is first and foremost, are actually making it easier for the shopper to go online right from their phone," Crawford stated. "So what's happening is really, for the first time, we're starting to see where brick-and-mortar retailers are having cannibalization directly out of their stores by competitors' e-commerce channels, whereas in the past that would have been limited."

Crawford said one area gaining momentum is adapting consumer mobile devices to serve as payment terminals. "If you look at what Apple has done, if you look at what FourSquare has done for the iPod and the Android, you have the ability now to take a mag stripe payment over really any set, any smart phone, and process it securely. It's a good alternative to hardwire installations for smaller merchants and for those operating temporary pop-up stores."

Overcoming barriers to mobile

Crawford believes focusing on mobile payments at the exclusion of other channels, such as developing a merchant's Internet presence, is shortsighted. "The challenge with payments, basically with all the automation here, is that retailers are looking at it too much in isolation," he said. "Mobile payments have not caught on in the U.S.

"A barrier to that is that the retailer is suddenly expecting the shopper to change their behavior without making a tie-in with what they're doing."

Greg Hammermaster, President of Sage Payment Solutions, agrees. "What we want to do is to look at it holistically and look at it from a loyalty perspective, from a payment perspective, from an information delivery perspective, and then put that together into a mobile strategy," he said, adding that it's more than "just simply sticking a little envelope onto the audio jack of an iPhone, swiping the card and saying we solved it."

In tandem with increased use of mobile payments, other payment methods will persist, according to Hammermaster. "I think now is the time also for merchants to embrace credit cards, because a lot of American consumers are loyal to their credit cards," he said. "Whether it's loyalty points or the convenience factor, there is a loyalty factor there.

"Customers buy from stores and vendors that they feel comfortable with. If the tendency is to persuade the customer not to pull out the credit card, but to use some other form of payment, they may not come back."

Integrating payment functions

During tough economic times, payment automation performs well as a merchant solution, Hammermaster noted. "We saw an uptick in the payments side of what we do," he said. "We grew rather significantly our customers that selected the payment to be integrated into their accounting or ERP [Enterprise Resource Planning] solution to eliminate the manual data entry that you have to do when you acquire payments," he said.

Automation "has become important for several reasons," he added. First, automation reduces the time it takes to get paid, which increases cash liquidity, he said. It also reduces processing costs, because automating transactions eliminates the need for manual key entry or management time to correct entries.

Sage offers a software-as-a-service (SaaS) solution that, according to Hammermaster, merchants are now more willing to adopt because SaaS-type services offer affordable integrated solutions.

"The backbone is really the payment data flow from the point of sale into the accounting system," Hammermaster said. "Retailers want to be able to accept payments through a POS device, through a software system, through the Web, etc. Essentially, they want to take all forms and methods of payment and have it flow into the accounting system just one way."

For this holiday season, Hammermaster advises merchants to reevaluate the fundamentals of their retail payment environment and consider consolidating payment vendors.

For example, if a merchant has a credit card vendor, a check vendor and an online gateway vendor, there could be three vendor contracts and multiple Payment Card Industry Data Security Standard hoops to go through, whereas with a full-service vendor all payment solutions are managed under a single platform, he noted.

"When you move into integrated payments, you are really changing the game," he said. "You are upping the level of commitment and reliance that your customer has on you. It's no longer just, the POS device doesn't work. It's now, does my data integrate into my accounting system and when I go through my audit, how does this thing work?"

Treating loyalty like royalty

Another way savvy retailers can capture more holiday spend this year is to utilize the latest offerings in gift cards, loyalty programs and coupon rewards. Mobile devices coupled with online services offer new ways to market directly to customers by extending the merchant-customer relationship over time. Such is the domain of Orange, Calif.-based Street Savings. "The holidays are all about traffic, and we offer a way to capitalize on that traffic to build sales volume throughout the year," said Pal Flagg, Chief Operating Officer at Street Savings. "The problem with most loyalty programs is that it's one more card to carry. Consumers want progress without a card. They want to be able to provide a phone number to track points."

Street Savings offers mobile marketing solutions that can be integrated with existing gift and loyalty programs, both those that use cards and those that do not. Merchants pay a monthly usage fee to send automatic, preprogrammed messages based on preset criteria to the mobile devices of customers who opt-in at participating merchants.

Flagg reported that market penetration of loyalty programs in the United States is below 5 percent, but he expects mobile rewards programs to increase the level of participation among U.S. consumers.

According to Doug Hardman, Chief Executive Officer at SparkBase, a private-label, stored-value network, loyalty is "where the largest growth segment for stored value is. Gift cards - we know that we need them and people will get them. But if you really want to make your business grow and you really want to help the small retailer, you get them involved in a loyalty or rewards program."

SparkBase has about 14 million registered cardholders on its unbranded website, https://getyourbalance.com, where users can register multiple cards and track their rewards balances.

In February 2010, the company launched an unlimited transactions program, eliminating the per-transaction fee; now ISOs can negotiate a flat monthly fee for unlimited transactions, making the loyalty program more accessible to smaller merchants, like the neighborhood coffee shop, Hardman reported.

SparkBase is working to build social networking and text messaging participation that will enable smaller merchants to interact with their customers. "So, if they're big on FourSquare or Twitter, they can go into a store, swipe their card after they earn points, and not only will it check the customer in automatically on FourSquare, but it might tweet them that they've earned a reward," Hardman said.

Another company set to make further inroads into prepaid gift cards this holiday season is prepaid industry leader Blackhawk Network.

Its gift card malls are positioned in groceries, convenience stores, drugstores and mass retailers throughout the United States, as well as online via GiftCardMall.com, Amazon.com, Meijer.com, Buy.com and drugstore.com. "I do see Blackhawk looking at prepaid as a real driver for a lot of different categories," said Teri Llach, Chief Marketing Officer at Blackhawk. "We see consumers choosing prepaid over credit or even debit these days because of the budgeting angle."

So, as consumers remain cautiously optimistic, now is the time for ISOs and merchant level salespeople to help merchants integrate technology strategies that will drive traffic into their stores this holiday season and beyond.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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