As contactless payment cards gain more momentum in U.K., supermarket giant Tesco wants to be sure its store loyalty card doesn't get left behind.

Tesco is upgrading 17 million Tesco Clubcards to contactless technology, which observers say is an industry first among store loyalty cards—and potentially a costly one—though the benefits of the move are hard to gauge.

The new card has no payments feature and replaces the older bar code card. Tesco also has expanded the benefits features of its Clubcard program, including enabling users to apply points toward payments from Uber and Hotels.com. Payqwiq, Tesco's mobile payments app, can also award Clubcard loyalty points with each store purchase.

Tesco shopping bag
Bloomberg News

Tesco is treating the upgrade as a noteworthy change to accommodate the full range of customer preferences, and the company has assigned 2,500 store workers to assist consumers with the transition this month.

Analysts suggest Tesco's move underscores the importance of accommodating all types of customers, including those not ready to adopt mobile payments.

“Retailers have long wanted to use the power of mobile technology to bring payments, loyalty and marketing together, but it’s proving to be pretty complicated to satisfy all audience segments…they’re being forced to fight a multi-channel war by supporting older and newer technologies all at once,” said Richard Crone, president of Crone Consulting LLC.

Thames Card Technology, which designed Tesco’s card, hinted that Tesco's new contactless card is a first step to linking payments and loyalty down the road.

For example, Tesco isn’t using a location-based system yet with the Clubcard, but the program could support it and more, said Paul Underwood, Thames’ co-founder and managing partner.

“Location-based notifications could be pushed to the phone when a customer is walking past a store or beacons could be used in-store to send deals when the customer enters the store or even when they are in a particular section,” Underwood said.

Tesco's contactless solution isn't a compromise as much as acknowledgement that it's going to take time for habits to catch up with technology, according to Underwood.

"As consumer channels expand, we see them as complementary, giving consumers more choice rather than killing off their predecessors," Underwood said. "Especially now that contactless has come to the fore in the U.K., cards are still easier, quicker and more secure than mobile payments, so they're not going anywhere, especially when you consider the ongoing popularity of cash and checks."

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