The key to gathering useful data about retail customers is to be able to identify the same customer across multiple transactions. Retailers primarily use two techniques: Loyalty programs, and Credit Card usage. One of these techniques is about to get much more difficult.
The use of a customer’s credit card number as a means of identifying the customer across transactions is employed widely in the retail industry. Whether retailers store the full Credit Card number, or just part of it (such as first and last four digits), or a hashed version that protects the security of the credit card number, the fact that the same number is used in each transaction gives the retailer a method to link those transactions and hence gain insights into the customer’s behaviour. Even when a retailer has a robust loyalty program with a card tagged to many transactions, the credit card number can be used to link additional transactions where the customer may not have used the loyalty card.
However, the launch of Apple Pay last year changed the game for retailers. With Apple Pay, a unique token is generated for each transaction, giving no way for the retailer to link transactions. Visa has now announced plans to extend their Visa Token Service (VTS) created to support Apple Pay into other payment areas such as eCommerce and mobile payments. MasterCard’s Digital Enablement Service (MDES), also created to support Apple Pay, is likely to follow suit.
As these technologies are adopted by more financial institutions, and more customers switch to mobile wallets, the utility of the credit card number as a customer identifier will diminish. Retailers will increasingly depend upon their loyalty programs as their primary means of customer identification.
This in turn will lead the savvy retailer into rethinking their loyalty program. To encourage customers to identify themselves, retailers will need to offer more than the simple (and often quite paltry) rewards traditionally associated with loyalty programs. Instead, the retailer will provide customers with additional services and simplified transaction when the loyalty card is used. For example, emailing receipts to the customer; providing access to kiosk services such as photo printing; and providing personalization such as identifying the right razor blade based on previous purchases.
Credit card numbers have been a convenient tool for retailers for years. However, the increasing theft of credit card numbers from retailers and the availability of new biometric identification technologies is driving the demand by both Customers and Financial Institutions for a payment method that does not disclose any personal details to the retailer. Retailers need to be planning now to revamp their loyalty programs if they wish to retain the value they derive from identifying customers.