As the effects of recent financial legislation may cause some card issuers to scale back on the rewards and loyalty programs they offer to encourage card use and, inherently, shopping, the doors may be opening for third-party loyalty-program providers to align with merchants.
Indeed, many merchants already are beginning to do more of their own loyalty-building, especially through mobile-phone applications, potentially making third-party providers of mobile-based loyalty initiatives the newest allies. Moreover, targeting consumers using mobile applications also may appeal to individuals lacking rewards-based cards or who are interested in saving without committing to a particular card-loyalty program.
And merchants appear to be open to the emerging trend. Orange, Calif.-based mobile gift and loyalty company StreetSavings notes that based on information from a recent study from Borrell Associates Inc., merchants will spend $6.53 billion on mobile-coupon programs by 2014, up from $90 million in 2009.
Moreover, in a recent survey regarding loyalty programs, Chicago-based Mintel Comperemedia found that 47% of U.S. adults surveyed most likely would participate in loyalty programs offering instant redemption (see story).
“There is a huge gap in the industry on the merchant side in terms of loyalty and rewards programs,” Red Gillen, a senior analyst with Boston-based Celent LLC, tells PaymentsSource. And because of the recent financial legislation tied to the Credit CARD Act, and the Durbin Amendment tied to the Dodd-Frank Act, “it is clear that many card issuers are going to be under complete financial pressure, and not in a good way,” Gillen adds.
The Dodd-Frank Act, which President Obama signed into law on July 21, requires the Federal Reserve Board to set policy for establishing “reasonable and proportional” debit card interchange rates, effective in July 2011, and it allows retailers to refuse to accept credit cards for transactions of $10 or less.
In fact, many debit card issuers now are considering adding account fees, raising minimum-balance requirements, reducing rewards and taking other measures to recoup revenue losses (see story).
Moreover, JPMorgan Chase & Co. earlier this month announced it will phase out its debit-rewards programs because of the pending Fed interchange rules (see story).
Should more merchants scale back their debit-rewards programs, more merchants will look elsewhere to attract shoppers, Gillen says. And turning to the mobile channel is one way to accomplish that task, Gillen contends.
Merchants generally remain interested in loyalty and rewards programs because the recent legislation does not directly affect merchant programs, Ron Shevlin, an analyst for Boston-based Aite Group LLC, tells PaymentsSource. And many retailers are considering loyalty programs not tied to payment cards, Shevlin adds.
As such, within the past year many companies specializing in mobile-based loyalty initiatives have rolled out low-cost programs that enable merchants, including small and local retailers, to entice customers through coupons and rewards available at the touch of a button.
Among them include Mocapay Inc., a Denver-based mobile loyalty and gift card technology company that in March officially rolled out its mobile-based payment and couponing platform. Mocapay offers merchants the option to increase customer loyalty through a mobile-coupon program or through a rewards service based on points or dollars, Kevin Grieve, Mocapay CEO, tells PaymentsSource.
For example, a small delicatessen may enable consumers to receive a free sandwich or meal on their 11th purchase, while larger merchants may offer a specific amount of points per $10 spent, he explains.
Through Mocopay, merchants give customers a one-time authorization code to conduct purchases from prepaid accounts using mobile handsets at the point of sale (see story).
Since its alpha launch in the second half of 2007, Mocapay now works with more than 200 merchants, about 10% of which operate in single locations, Grieve says.
Mocapay sets up software in participating merchants’ point-of-sale systems so they can accept the mobile coupons and send out the authorization codes, he says, noting merchants pay Mocapay small set-up and monthly fees. The company declined to disclose the cost of the service and equipment.
Most merchants usually offer the mobile-coupons service to consumers for free, but some may charge a small fee, Grieve says. The fee-based option may include a $25 annual membership fee to receive 10% off on each purchase, he says.
To redeem coupons, Mocapay offers merchants the option to send participants text messages before, during or after a visit, Grieve says. For instance, merchants may want to note on the bottom of receipt for morning shoppers that they will get a discount if they come back after 2 p.m. to make another purchase, he says.
