Loyalty Programs will be Most Affected with Move to Tokenization

October 20, 2014     By : Ray

The mobile payments space is witnessing some radical shifts. Some major ones include the advent of tokenization with its specifications being officially announced by EMVco. Another major development is Apple’s foray into the space with Apple Pay. So the question arises: how these developments will affect the current loyalty programs that exist in the market? Will loyalty marketers have to come up with some evolved techniques to keep up with the current trends?

Apple pay is using a host of security features like biometrics, secure element, NFC and it is also employing the tokenization platform. Apple has already tied up with major credit card issuers and is poised to use each network as Token Service Provider. These card networks are also rushing to create a tokenization model based on EMVco specifications. The new tokenization standards could create issues for merchant loyalty programs.

Traditionally, loyalty programs use the customer’s card number (PAN) as the unique identifier in the system. Since tokenization uses a runtime generated token for transactions, the move away from PAN can cause the loyalty programs to no longer work. Loyalty programs will have to evolve and can learn from Apple Pay’s approach which involves painless enrollment, frictionless participation and effortless security.

Signing up for traditional loyalty programs is a lengthy process and brings added complexity. Next-generation loyalty solutions must focus on simplification and optimizing around the customer’s valuable time. Retailers should focus on loyalty programs that accept and enhance the ways customers want to pay. The technology now exists for loyalty to be layered on top of existing payment methods. Apple is also planning to develop its own loyalty program.

On July 31, 2014, Apple had filed a patent which hinted at a possible loyalty program. In this patent application, Apple cites improved techniques and systems for redeeming a promotional code to acquire a digital product, such as an in-application asset. The techniques and systems can operate to validate the promotional code that is being redeemed to acquire the in-application asset and can confirm that a requestor’s redemption device has the corresponding application program installed.

As reported by Bank Innovation, Apple is hiring talent to develop such a program and would launch a pilot program with partner merchants. There is nothing clear as such as to how exactly Apple would enable a loyalty program. Maybe it could use the cards-on-file as default PANs to enable loyalty programs. A possible Apple Pay rewards program could offer discounts or points with partner merchants to make free purchases on iTunes. Existing loyalty programs would have to make the shift to upcoming systems if they wish to survive alongside payment methods like Apple Pay.

Tokenization is here to stay and by October 2015, merchants would have to make the transition as well. The best option for current loyalty programs is to somehow adopt new payment systems like Apple Pay which are attracting more merchant adoption.

Stay Fresh on FinTech. Get our Daily Insights.

Ray

Ray has keen interest in the area of devices, OS and wireless technologies. He is a Mobile Technology enthusiast and believes that Mobility is going to completely change the way we do Payments and Commerce. He wishes to share this belief with the world by providing such content through LetsTalkPayments. Ray has done his engineering as well as MBA.
  1. #1 Todd Coulter 20 October, 2014, 14:36

    They can solve the loyalty issue, as well as driving many additional value-added capabilities by moving the token model to use an intermediary. This is where I believe it will have to go.

    Reply this comment