Diving Into The Smart Card Market
Smart Card Solutions, LLC crosses technologies — POS, imaging and AIDC — to provide smaller retailers with
smart card loyalty programs. The company expects to be ready for the imminent smart card explosion. Should you be prepared?
Smart Card Solutions, LLC, founded in 1996, offers card personalization, host services, database management, terminal deployment and technical support to its customers. The company has 12 employees.
Smart cards, plastic payment cards that have computer chips embedded in them, are used widely in Europe, Asia and South America. In the United States, smart cards are mainly used in closed environments, such as college or business campuses. "The smart card industry in the United States tends to be lagging behind where people thought it would be by now," Biwer admits.
By 2001, 3.4 billion smart cards will be used worldwide, mostly outside the United States, according to Dataquest (Stamford, CT), a research company. The widespread adoption of smart cards in the United States. is not far off however, predicts Biwer. "Support for multiple applications is key. Loyalty programs, using smart cards, will help drive their adoption in this country," he says. To that end, Smart Card Solutions has developed a flexible loyalty card solution specifically for smaller "mom and pop" retailers, including hair salons, tanning salons, specialty stores and auto repair shops.
It's the smaller retailers that will help Smart Card Solutions expand, says Biwer. He says the larger retailers, such as Wal*Mart and Kmart are using magnetic stripe card solutions, while many grocery stores use bar-coded loyalty cards. "We are attacking a different part of the market," says Biwer.
Meeting The Needs Of The Smaller Retailer
Where does Biwer find his customers? Most of the qualified leads are referrals from Smart Card Solutions' vendors. The company does little, if any, cold calling, says Biwer. "The Internet has also turned out to be a good lead generator," says Biwer. "We also partner with card associations, banks and ISOs to provide solutions. We use their sales staffs to market our products." What are smaller retailers looking for in a customer loyalty program? Not necessarily increased sales, Biwer believes. "Tracking customer information is more important," he says. "Improving the customers' purchase experience is also an important part of a loyalty program."
Smart Card Solutions' sales follow the cyclical nature of retailing. "Retailers typically aren't buying loyalty card programs in December or January. That's when we concentrate on upgrading our products and developing new products," says Biwer.
A Beautiful Solution
Most of Smart Card Solutions' customers are smaller retailers. However, one larger account, Estee Lauder, helped put the company on the map, so to speak. The account also illustrates how Smart Card Solutions' smart card loyalty program works.
The Estee Lauder Cosmetic company, with its Estee Lauder and Clinique brands, has run a loyalty program for four years. Cardholders shop the Estee Lauder and Clinique beauty counters internationally. The smart cards store easy-to-access, detailed profiles, preferred products and product purchase histories for each customer. This information is automatically updated with each purchase. Store clerks simply insert the cards into smart card readers to access customer information on the POS terminal. The clerk can use this information to sell additional products and make purchase recommendations.
"Once retailers adopt a smart card loyalty program, the way they market to their customers changes," notes Biwer. A retailer can eliminate a mass-market approach to attract customers to specific products. "This type of loyalty program identifies the best customers, those with great purchase habits," says Biwer. A targeted approach of rewarding these customers helps to eliminate what Biwer calls the "cherry pickers". Cherry pickers only come into a store when there is a "supersale" and buy lower margin products.
In addition to smart cards, Smart Card Solutions' applications combine point of sale (POS), bar coding, database management and image capture in one solution. Customers fill out a form with their name and address and other relevant information to obtain a loyalty card. The salesclerk at the store scans the form using an optical character recognition (OCR) scanner and OCR scanning software. The customer's card is printed on-site using a personalized card printer.
Items sold at the point of sale have bar codes on them. Upon purchase, they are scanned into the POS system using a handheld CCD laser scanner. The POS system includes software and can support a variety of peripherals such as a check reader, a smart card/magnetic stripe reader and pole display. "The biggest advantage to combining these technologies is that we can offer the full, turnkey solution," says Biwer. "Multi-solutions, such as credit and debit, loyalty programs and gift certificate programs are all capable of being run on the same pieces of equipment." Smart Card Solutions also keeps its customers supplied with program consumables, including store branded, private label cards, rolls of paper and printed documentation.
Charging For Cards: The Cost Of Doing Business
While Estee Lauder doesn't charge its customers for its loyalty cards, many retailers do, says Biwer. "We recommend that retailers charge their customers for the smart cards," says Biwer. While this may surprise some people, Biwer points out that it makes sense. "People who pay $5 to $15 for a card will value it more than a free punch-type card. They will value it even more if it is personalized," says Biwer.
Charging their customers for loyalty cards also helps retailers realize a return on their investment sooner, adds Biwer. It can take from six months to one year for retailers to realize an ROI with a new loyalty program, says Biwer. (Smart cards vary in cost, from $.80 to $15, according to information from Dataquest.) Biwer says the cost is high when compared to the cost of magnetic stripe cards, also used in loyalty programs. Magnetic stripe cards range in cost from $.30 to $.50, according to Biwer.
Although magnetic stripe cards are less expensive, smart cards offer the benefit of using low-cost, offline transactions, thus eliminating authorization communication costs. Smart cards are rated at over 100,000 insertions into smart card readers, making them a longer-lasting alternative to magnetic stripe cards. Smart cards are also more reliable than magnetic stripe cards, according to Biwer. Magnetic stripe cards can be demagnetized by stray magnetic fields. Sliding one card against another, for instance, can cause problems with the stripe. Also, magnetic stripe cards are easily reproduced, making them less secure than smart cards, he adds.
The Future Is New Technology
Looking ahead to the future, Biwer is optimistic. Smart Card Solutions is two-and-a-half years into its five-year plan. "We plan to be a third-party intermediary – providing application-loading onto smart cards," says Biwer. "Banks, airlines, insurance companies and any company needing to have applications residing on smart cards will need a distribution service provided."
His advice to VARs moving into the smart card market? "You have to have an understanding of changing technology and how it affects retailers," says Biwer. "Be adaptable; things are changing fast. E-commerce, for example, is relying on all new technology. And the Internet is bringing to light new ideas and new ways of using technology to the forefront."