First, let me explain the primary issue with smart cards and loyalty. Actually, the problem is with smart cards and any “substantial” value, the term substantial being in the eyes of the holder. I refer to the issue as the “value conundrum,” and it goes like this:

• I, as a consumer, might be convinced to put “substantial” value on a smart card if I knew that it was safe. From my perspective, safe means that I can replace the value if something happens to the card (e.g. lost, stolen, broken).
• For a program operator to replace the value on the card, the value must be collected and maintained in a central location.
• If the program operator collects and maintains the value in a central location, then why does it need to be on the card?

This conundrum assumes that the cost of communications is small in the scheme of things and loyalty-related communications can take place at the time of a financial transaction at nominal marginal cost. This is the case in US and Canada, but is not the case in much of the rest of the world. This reduces the validity of the conundrum somewhat, although as an operator you should now consider alternate data management schemes (e.g. a local store model) in addition to the smart card.

Recent studies have shown that contactless cards are not achieving the penetration that issuers had hoped. This is a consequence of a number of things, with the keys likely being the limited number of merchants that accept contactless and consumer habit. The later of course being that consumers are used to paying for certain items with cash and it takes some time for them to recognize that an alternative is available and to consistently adopt that alternative.

At the Card Forum in Boca Raton earlier this year (2007) I was on a panel that considered issues around contactless. Items discussed included the adoption rate, costs, and whether smaller institutions would be behind the power curve if they did not move to issue such contactless cards now. The discussion was excellent, except that one of the panelists noted that contactless cards are smart cards and that they would be excellent for loyalty applications and offered this as one rationale to move forward with contactless. Oh boy, deja vu.

Just say “No.”

Do not muddle the discussion of contactless technology with talk of loyalty applications. The amount of infrastructure required to make that a reality is large, complex, and the conundrum is in full play. Contactless saves people time — this should be benefit enough. If it’s not, move on, but don’t spend more time and effort here relative to loyalty as there are plenty of better places to spend money.