Au Revoir Loyalty Cards,Bonjour Smart Cards

In the past year, I've written several feature stories on enterprising VARs and integrators capitalizing on the future of smart cards in the United States. While each VAR approaches business from a different angle, their ideas were relatively the same. Smart cards, which contain a small microchip that can be written to or read, add convenience and security to transactions. These VARs often integrate the smart cards and smart card terminals for security, universities, and retail applications.

Enter Welcome Real-time, an integrator based in Aix-en-Provence, France. Aneace Haddad, the company president and CEO, pulled up stakes from his digs in Boulder, CO, and moved to France to try this new approach to smart card transactions. The company gives retailers the ability to add loyalty programs to smart cards. Loyalty cards are credit card-sized punch cards retailers use to entice customers back in the store.

Concentrating on the European market lets Welcome Real-time gain momentum to grow in the United States as smart cards take off. Visa predicts between 32 million and 38 million chip cards will circulate in the United States by the end of this year. However, the European market is already familiar with the technology. "France has a strong supply of smart card professionals," says Haddad. "Employee turnover is very low."

For a retailer, the Welcome Real-time idea is simple: Loyalty cards keep customers coming back to stores because everybody loves stuff that's free or at a reduced price. Welcome Real-time's XLS (eXtended Loyalty System) software lets retailers add dozens of loyalty programs to smart cards. So, when I enter my favorite coffee shop and pay with my smart card, the card knows I normally purchase a low-fat caramel latte in the mornings three times a week. The coffee shop owner can take this information and tailor coupons or specials directly to my purchasing habits. I know I'd rather have a coupon for a free latte over a regular cup of coffee any day. Plus, coupons are printed instantly at the credit card terminal, along with the standard credit card receipt.

A Technology Evolves In The Retail Market
"Welcome Real-time grew out of smart card-based electronic couponing work I did with a start-up company I launched in 1992," Haddad explains. "Welcome Real-time was incorporated in 1996, and the first XLS pilots were initiated. Our first customers included AOM French Airlines' frequent flier program and Mille Amis, a pet store chain. In March 1998, we were granted a patent related to real-time processing of customer behavior, which is stored in a smart card chip. That September, market feasibility was established through live tests at Quick, a chain of fast-food restaurants in Paris. This demonstrated that a single smart card could carry dozens of distinct merchant programs, equivalent to punch cards. It also showed that cardholders, merchants, and card issuers could benefit from XLS. In March 1999, U.S.-based card issuer First USA lead a cross-industry coalition to integrate XLS on Visa smart credit cards.

"Since then," Haddad calculates, "about 50 man-years of integration effort have been supplied by companies such as Bull, First Data Resources, First USA, Gemplus, IVI/Ingenico, McDonald's, Paymentech, Schlumberger, SmartTV, Ubiq, Visa U.S., and Welcome Real-time. My initial goal was to leverage smart card technology as a new-generation marketing tool. Today, the goal is to provide the underlying software that makes chip cards intelligent. This allows chip payment devices to understand their users and obtain coupons and other incentives based on the users' behavior profile."

We market XLS to banks, financial institutions, and mobile phone operators. Revenue is generated through licensing fees for each card issued and fees for technical and marketing services. "We want to be a global software supplier for smart payment devices," Haddad says candidly. "Our growth will be fueled by having XLS in multi-participant programs running on smart payment cards issued by financial institutions. Banks and financial institutions aggressively seek new methods to increase card usage because the market is extremely competitive. We simply create a competitive advantage for these financial institutions."

Marketing To The Masses
Becoming a global software provider in retail is no small challenge - especially when you're messing with banking cards. Even if the technology is great, how does Welcome Real-time gain customer acceptance?

"Our market development model is based on the same business dynamics that created payment acceptance symbols," Haddad explains. "We're modeling our strategy after companies such as Visa, MasterCard, American Express, and ATM symbols like Plus and Cirrus. These companies' symbols show cardholders where their cards are accepted. The first banks and financial institutions that recognized the need for payment symbols and ATMs launched new services and brands faster than their competitors. We believe smart incentive symbols will cause the smart card market to explode.

"The credit card market is booming," he continues. "People are increasingly using plastic instead of cash and checks. And, with new retail markets such as the Internet, plastic is the only way to pay. At the same time, the credit card market is a highly competitive market with low margins. Plastic became a commodity during the last decade. Because of these factors, there is tremendous incentive and strong pressure on card issuers to find new ways to add value to their cards - and to make their cards stand out from the pack."

Haddad has also written a book on smart card technology, titled Using Smart Cards To Gain Market Share. Information is obtainable on Welcome Real-time's Web site.

Addressing The Mobile Market
According to Haddad, chips are appearing everywhere – from toasters to light bulbs. "It's only a matter of time before payment devices become smart, too," he explains. "But, credit card companies haven't fully taken advantage of this smart technology, which leaves room for other players. Mobile phones are increasingly used as payment devices. In some markets, mobile phones are being used to pay at vending machines. By dialing the number displayed on a Coke machine, the drink is released from the machine and the purchase appears on the customer's mobile phone bill at the end of the month. There's no need for change or a plastic card because the chip is integrated into the phone. With XLS, the machine can offer incentives like receiving the 10th Coke free.

"For us," Haddad discloses, "a smart payment device is a smart payment device – regardless of whether it's in the form of a plastic credit card or a mobile phone. We have reoriented Welcome Real-time to encompass the very large, emerging market of smart payment devices. In the future, credit cards will only be a subset of this industry."

Questions about this article? E-mail the author at NancyS@corrypub.com.