Visa Places Its Bets on Mag-Stripe Cards for Electronic Loyalty

Target Corp.'s decision several weeks ago to discontinue its chip-based electronic loyalty program has confirmed for Visa USA that U.S. consumers are not likely to embrace new transaction technologies any time soon, whether tied to loyalty programs or not. Indeed, for the foreseeable future, the bank card network is shifting its emphasis to its magnetic-stripe-based Visa Extras program instead, which awards points for qualifying purchases. “We want to focus on the 400 million cards we have in the marketplace and not try to change consumer behavior,” says Jim McCarthy, senior vice president for new technologies and products at Visa. McCarthy says Visa has concluded it can deliver a sophisticated, multi-vendor e-loyalty program on its existing point-of-sale infrastructure, which is designed to accept mag-striped cards, with a network of central servers keeping track of rewards points and other incentives aimed at shifting consumer shopping patterns and driving incremental spend. The idea, loyalty experts say, is to create incentives that are redeemable across a network of vendors and merchants, rather than a simple points or e-coupon program good only at a single chain. “We're looking at points as a currency and at how do you get there,” he says. “We're working that out now [with Visa Extras].” When Visa launched its Smart Visa Rewards program four years ago, it was with the intention of delivering such a coalition marketing program on a chip-enabled payment device, the smart card. E-loyalty was seen by many experts as the linchpin to making smart cards succeed in North America. Target signed on in 2001 and seemed to give the program considerable momentum, setting up 9 million accounts for a chip-based co-branded Visa card that could download digital coupons from in-store kiosks and the Web. But the chain announced last month that, while it would continue to issue the card through its Retailers National Bank unit, it was closing down the card's chip function, which had been supporting its e-coupon program. In its announcement, Target blamed lack of usage for its move, which has disappointed chip card proponents across the country and has seemingly driven another nail in the coffin of chip card initiatives in the U.S. McCarthy says Visa has concluded consumers for now at least are wedded to mag-stripe cards and see no strong incentives to shift to other electronic payment devices, including chip-based, contactless cards and keyfobs of the sort American Express Co. and MasterCard International are testing. These devices replace card swipes through a terminal with radio signals that communicate account data to a point-of-sale receiver and are said to be more convenient and faster than conventional credit and debit cards. But, given the expense of RFID devices and other infrastructure, coupled with consumer satisfaction with mag-stripe cards, says McCarthy, “We're not sure the business case is there for RFID.” Even the argument that such RFID devices are faster than credit cards for fast-food and other venues in which tender time is critical is wrong, McCarthy argues. In a program called swipe-and-go, Visa allows transactions under $15 in these venues to be conducted without a cardholder signature, which significantly speeds up transaction time. “There's no incremental difference in transaction speed [between RFID and signature-based cards],” argues McCarthy. “In some cases RFID can be slower than swiping and going.” All of which is not to say Visa is placing all of its bets on mag-stripe cards for e-loyalty. In other parts of the world, the company “continues to pilot RFID to make sure there's nothing we're missing here,” he says. But for the time being, the action will be on conventional cards. “We have not yet mapped a significant value to the chip,” says McCarthy. “Target was just one more instance where [chip-based loyalty] hasn't driven the value any of us expected.”