Brick-and-mortar retailers are chasing a missing link for sales and marketing—the deep customer data that e-commerce merchants easily obtain through online orders and shipping information.

Index, a San Francisco-based retail software provider, is attempting to plug that hole through a payment gateway that mines data, builds customer relationships through messaging and coupons and delivers multiple levels of security.

Index is debuting its gateway software with natural foods grocer New Seasons Market in the Portland-Vancouver area and New Leaf Community Markets in central California.

"We're looking to bring the metrics and personalization of e-commerce into physical retail stores," said Marc Freed-Finnegan, co-founder and CEO of Index. Freed-Finnegan and co-founder Jonathan Wall are former Google Inc. executives who worked on development and marketing of Google Wallet.

Index software integrates with a retailer's current point of sale terminals, operates through Verifone PIN pads, and moves transactions to processor First Data. The company does not provide payments hardware.

"In payments terms, we look a lot like a payment gateway, but we aren't a traditional gateway," Freed-Finnegan said. "We manage the PIN pad so we can do customized welcomes, and marketing messages, as well as deliver e-mail receipts with product ideas or coupons to the consumers."

The traditional gateway services come into play in providing multiple layers of security, Freed-Finnegan said.

Index provides end-to-end encryption after a card swipe or contactless transaction to secure data in transit. It also creates an identity token to secure data in storage, so it can only be used to develop reports on consumer buying habits. A separate high-value token is used for merchant-specific e-commerce or mobile transactions.

In addition, Index will introduce through the New Seasons app a mobile two-factor authentication in the first quarter of 2015. It will use iBeacon technology to identify a customer with a phone coming into a store and the PIN pad will include a "Pay with Index" button that connects the consumer with the account he has established through the retailer app.

"We are building the app for New Seasons, as the consumer will have that application and the retailer needs only the Verifone PIN pad" in order for communication to take place, Freed-Finnegan said.

Index has developed a service that will garner much attention as more retailers move toward mining customer payment data to increase sales and loyalty, said Scott Strumello, analyst with New York- and London-based Auriemma Consulting Group.

 "It falls in line with what MCX [Merchant Customer Exchange] will try to do with CurrentC in the future," said Strumello, referring to the retailer joint venture designed to, in part, assure merchants secure their customer data.

MCX recently partnered with InComm as a provider of digital gift cards and loyalty cards.

"It means we will see a lot more of this type of innovation going on," Strumello added. "What Index is doing is very consistent with what we are seeing across the payments spectrum right now."

But Index is counting on its agnostic approach to payments as well as its security features to help it stand out in the crowd.

"Everyone has seen that retailers are shifting to this sort of service, and many solutions are trying to solve it, but we certainly think our technical and business approaches to this problem is quite unique," Freed-Finnegan said.

Index charges service fees, rather than transaction fees. "We essentially are a performance-based marketing company that helps partners understand what is happening with their business," Freed-Finnegan said. "We recommend the right products or coupons to their customers and, if they are successful, we share in that uplift."

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry