Loyalty programs have often been considered a key motivator to shift consumers to mobile payments and away from cash and cards. But few companies have actually blended mobile with loyalty in a compelling way.
One of the standout exceptions is Starbucks, which built its mobile payment app on top of the its existing loyalty program in 2009, and to this day credits its loyalty program for the massive success of its mobile app. But at the opposite end of the spectrum there's Apple Pay, which is gaining momentum despite having no built-in loyalty component whatsoever.
But soon enough, loyalty will tie in more firmly to mobile, particularly as Apple and Google are updating their mobile wallets with an emphasis on accommodating retailer loyalty programs.
The current separation of payments and loyalty in a mobile setting "is a problem that needs to be solved," said Richard Oglesby, senior analyst at Double Diamond Payments Research.
"The only widespread mobile payments solution out there, Apple Pay, passes network credentials from the point of sale, but there is no setup for a loyalty card being passed," Oglesby said.
Under that scenario with Apple or others, it is possible a consumer would have to make "two taps" of a phone at the point of sale terminal to make a payment and access a loyalty account, Oglesby added.
One of the few companies that has tackled this problem is Walgreens, which offers a Balance Financial Prepaid MasterCard that doubles as a store loyalty card. The shopper swipes the card only once to make a payment and earn rewards.
Toronto-based nanoPay has a white-label Frictionless Payments system designed to accomplish the same task, said nanoPay CEO Laurence Cooke. The nanoPay application was established as a digital cash system that can accommodate multiple payment types and combines the payment with loyalty in a single-use token.
Frictionless Payments can handle debit, credit, ACH or digital cash, said Cooke. To initiate a transaction, nanoPay supports Near Field Communication, bar code scanning and its patented "jiggle," or shaking of the phone to check out at the point of sale.
"A problem has always been that when a new payment type comes around, it seems they have to build a new set of rails," Cooke said. "We wanted a universal acceptance methodology, where the token could represent any type of payment generated from a highly secure hardware that encrypts both payment and loyalty information."
Being relatively new on the payments scene, nanoPay is currently in a soft launch with some Ready 2 Go convenience stores in Ontario, gauging consumer feedback prior to expanding to the company's 3,000 stores and offering the system nationally.
Nanopay has an API for larger companies, and a white-label app that integrates into smaller merchants' online or iPad-based systems.
Either way, retailers never see the consumer's card credentials on their networks. The app-generated token goes to nanoPay, where it is coded to move into the chosen payment gateway.
Over time, as Visa and MasterCard make tokenization programs available, merchants would gain even more protection and a simpler nanoPay process.
At first glance, nanoPay sounds similar to what the Merchant Customer Exchange envisioned for its CurrentC mobile wallet, which is still in development. CurrentC first made national headlines when some of its retailers blocked Apple Pay to maintain their exclusivity to MCX. It was also designed to sidestep credit card companies by sending transactions through the less expensive automated clearing house network.
The MCX venture had good intentions when designing CurrentC as a payment and loyalty platform, but got off on the wrong foot by being anti-credit card, Cooke said.
"You can't really start a company with a mandate of being anti-something," Cooke added. "They should have been promoting the intention to build the best mobile pay process on the planet. That sounds better than doing something just to leave out the card companies."
In part, that is why nanoPay created an open ecosystem to accept any payment mechanism, Cooke said. "Merchants can decide to reward consumers for paying with the best payment instrument for them, such as 100 points for using a debit card."
NanoPay is getting attention "from all of the usual suspects" in the payments industry, Cooke said, noting his startup is willing to work with larger companies and will keep its options open if acquisition talks ever unfolded. In the meantime, nanoPay expects to soon announce a deal to acquire a government-backed digital cash platform, Cooke said.
A problem for nanoPay and other startups like it would be that Apple and Google are likely to create a similar system for their own mobile wallets, said Thad Peterson, senior analyst with Boston-based Aite Group.
"Much of the loyalty/payment development will be driven on how the campaign management tool is set up for the merchant, as well as the customer onboarding process," Peterson said. The concept of attaching a token ID to customer behavior will provide more security to merchants, Peterson added.
Regardless of how the combination of payments and loyalty plays out in the next year, nanoPay is "trying to break the code on the last inch of payments by incorporating loyalty," Peterson said. "That's admirable, all by itself."