Target Will Ditch Its Chip, But Not E-Coupons

Target Corp., which has opened more than 9 million accounts for its cobranded Visa smart card since the program's launch in November 2001, has announced it is shutting down the chip function on the card owing to lack of use. Target said in a statement today the phase-out will begin this summer because the electronic coupon program supported by the chip “experienced limited use by our guests.” Cardholders are able to load digital coupons on the chip via the Internet and in-store kiosks. The chain refuses to comment beyond its statement. However, the vendor of the software supporting Target's chip-based loyalty program issued a news release yesterday saying Target had informed it the program was ending and would be wound down over a 12-month period. Catuity Inc., a Detroit-based provider of software for loyalty programs for magnetic-striped and smart cards, said in the release it is “evaluating the impact (of Target's decision) on 2004 forecasted revenue and net income.” But the company has hopes Target will consider its product for other point-of-sale loyalty applications. In its statement, Target says it will continue to support its electronic couponing program “as we build a transition plan to a new loyalty program that will better meet our guests' needs.” “I know Target is dedicated to creating loyal customers, and I hope we'll be considered,” says Michael V. Howe, chief executive at Catuity. Some observers who are skeptical of Target's smart card loyalty program argue the retailer may be cutting its losses while shifting to a less costly system to support electronic couponing and other loyalty programs. “The typical mag-stripe card would do the same job at significantly less cost,” says Gwenn Bezard, an analyst at Celent Communications. Bezard argues a mag-stripe program, in which loyalty data would be stored on a central switch or server rather than on the chip, makes more sense than a smart card-based loyalty program in the U.S., where telecommunications costs are so much lower than in Europe and other regions of the world where smart cards have taken root. With more and more terminals connecting to the Internet, he says, “the cost of exchanging information over a network is going down and will continue to go down. In that context it doesn't make sense to make an investment in smart card infrastructure.” The retailer's decision to discontinue its smart card program doesn't affect the other features of the Target Visa card, which was announced with considerable fanfare at its inception as one of the most ambitious smart card projects attempted in the United States. The chain has installed about 35,000 terminals capable of accepting the card at its 1,100 stores.