cardindustryoverview-12533720839201-phpapp01.pdf

1
Overview Of Card Indus try Technology ToLoyalty

© 2001-2004 BusinessHive & Creative Commerce Group.
All rights reserved.
2
Commerce has become a
technical issue. It is not only
about making a financial
transaction, it is about having
a relationship with the
consumer while they are
exchanging currency for goods
and services.
A Thought

3
Ins ight
• Kim Res ch
– ExtensiveExperienceinDebit, Credit, andSm
art
Cards, M
obileCom
m
erce, Loyalty andIncentives.
– Practical Experienceinnewproduct launches
includingAm
exBlueandsm
art Visa.
– Specializesinproject strategy, project m
anagem
ent,
im
plem
entations, andtrainingin theem
ergingareasof
com
m
erce.
• Dave Carrithers
– 20yearsexperienceinsem
iconductor, chem
icals,
consum
erproducts, incentives, stored-value&debit
cards, etc.
– M
arketing, IT, Sales, NBD, operations
– Focusonproduct, business&m
arket developm
ent

4
A Little Laugh

5
Objectives Of Today
• His tory of the card indus try
• Review the different types of cards and
payment types available in the market
• Ins ight into how card products are
proces s ed & the players
• Review of the loyalty card indus try
• How & where the money is made in the
indus try
• Review of the credit card & airline loyalty
programs
• Review of the s mart card
• Trends in the world of cards & payments
• Opportunities

6
His tory Of Payment Cards
• 1914-W
esternUnionprovidedm
etal cardsgivingfree, deferred-
paym
entprivilegestopreferredcustom
ers. Thesecardscam
eto
becalled"m
etal m
oney.“
• 1924-General PetroleumCorporationissuedthefirstm
etal
m
oney forgasolineandautom
otiveservicesfirsttoem
ployees
andselectcustom
ersandlatertothegeneral public.
• Late1930's- Am
erican TelephoneandTelegraph (AT&
T)
introducedthe"Bell SystemCreditCard." Soon, railroadsand
airlinesintroducedsim
ilarcards. Creditcardsgrewinpopularity
until thebeginningof W
orldW
arII w
hen "Regulation W
" restricted
theuseof suchcardsduringthew
arandtem
porarily suppressed
thegrow
thof thisnewpaym
entalternative.

7
• 1946-ANewYorkbankerdevelopedacreditsystemcalled
Charge-It. Whencustom
erschargedlocal retail purchases, the
m
erchantdepositedthechargesatBigginsBank andthebank
reim
bursedthem
erchantforthesale. Thebank latercollected
paym
entfromthecustom
er.
• 1950- M
r. M
cNam
aracreatedDinersClubchargecard.
• 1951 - Custom
ersof NewYork'sFranklinNational Bank
subm
ittedanapplication foraloanandw
erescreenedforcredit.
Approvedcustom
ersw
eregivenacardthey couldusetom
ake
retail purchases. Them
erchantcopiedthecustom
erinform
ation
fromthecardontoasalesslip, calledthebank forapproval of
transactionsoveracertain am
ount. Thebank w
ouldcreditthe
m
erchantaccountfortheloan m
inusafeetocoverthecostsof
providingtheloan.

8
• 1959-M
any banksw
ereofferingtheoptionof revolvingcredit,
w
hichallow
edcustom
erstom
akeregularpaym
entsonthe
balanceow
edratherthanhavingtopay off theentirebalanceat
onetim
e.
• 1965 -Bankcardassociationsbegan w
hen Bank of Am
erica
form
edlicensingagreem
entsw
ithotherbanks. Thisenabledthem
toissueBankAm
ericardandInterchangetransactionsam
ong
participatingbanks.
• 1966-FourteenUS banksform
edInterlink, anewassociation
w
ith theability toexchangeinform
ation on creditcard
transactions.

9
• 1967 -FourCaliforniabanksform
edtheW
esternStatesBankcard
Association andintroducedtheM
asterChargeprogramto
com
petew
iththeBankAm
ericardprogram
.
• 1967 -JürgenDethloff inventsthesm
artcardcom
puter.
• 1969-Asthebankcardindustry grew
, banksinterestedinissuing
cardsbecam
em
em
bersof eitherBankAm
ericardor
M
asterCharge. Theirm
em
berssharedcardprogramcosts,
m
akingthebankcardprogramavailabletoeven sm
all financial
institutions.
• 1970-Ascreditcardprocessingbecam
em
orecom
plicated,
outsideservicecom
paniesbegantosell processingservicesto
VISAandM
asterCardassociationm
em
bers. Thisreducedthe
costof program
sforIssuingBanksandAcquirersandincreased
thesizeof thebankcardindustry.

10
• 1970/1971 - M
asterChargeandBankAm
ericarddevelopedrules
andstandardizedproceduresforhandlingthebankcardpaper
flowinordertoreducefraudandm
isuseof cards. Thetw
o
associationsalsocreatedinternational processingsystem
sto
handletheexchangeof m
oney andinform
ation andestablished
an arbitration proceduretosettledisputesbetw
eenm
em
bers.
• 1976-Apre-paidphonecardw
asintroducedby theItalian
national phonecom
pany SIP. Theintroduction of thephonecard
w
asbroughtaboutby anextrem
eshortageof coinsinthecountry
w
hichledtoarashof payphonethefts. TheItalianphonecard
usedam
agneticstripe, sim
ilartothosefoundon creditcards, and
requiredtheuseof apayphonespecially equippedw
itha
m
agneticcardreader.

11
• 1977 - BankAm
ericardbecam
eVISA.
• 1979-M
asterChargechangeditsnam
etoM
asterCard.
• 1982-Japan'sNipponTelephoneandTelegraphintroducedthe
firstJapanesepre-paidphonecardtom
akecallingm
ore
convenientforthetensof thousandsof daily subw
ay ridersin
OsakaandTokyo. LikeitsEuropeancounterparts, theJapanese
pre-paidcardsreliedonam
agneticstripandspecially equipped
telephones.
• 1993/1994-Experim
ental cardoperatingsystemattheUniversity
of Karlsruhe. Itw
asm
ainly intendedtoim
plem
entandcom
parea
fam
ily of publickey cryptoprotocolsw
orkedon attheEuropean
Instituteof SystemSecurity. Hencethenam
eof thecardw
as
"ICEcard" (IccardforCryptographicExperim
ents).

12
• 1990NewYork'sRBOC, Nynexreleasedthefirstpre-paidcalling
cardthatusedPINauthorizationinsteadof them
agneticstripe.
Nynex'scardperm
ittedthecardholdertodial an800num
berand
enterhisPINtom
akelongdistancephonecalls.
• 1993–Firstbank debitcard/checkingcardissued.
• 1994-M
AOSCOandKeycorpcreateprogram
m
ablesm
artcards.
• 1995–SelectiveUseDebitCardIssued–Exclusively YoursCard.
• 1995–FirstStored-Valuecardissued–YourChoiceCard.
• 1996–VisaCashStored-ValueLaunched.

13
Card Indus try Lands cape
The Why!
The Players!
The Program Specifics!
The How!

14
Definition of Terms
• :
Card As s ociations Both VISAandM
asterCardarenotfor-profitorganizations
w
hobothissuecreditcardsandsetandm
aintaintherulesforprocessing. They
arebothrun by boardm
em
bersw
hoarem
ostly high-level executivesfromtheir
m
em
berbanks.
• :
Is s uing and Acquiring Banks Anissuingbank istheoriginal bank thatissues
thecard, such asaFirstUSAVisacard. Theacquiringbank isthebank setup
by them
erchanttoaccepttransactionprocessingforcardsaccepted.
• :
Authorization Reques t and Res pons e Anelectronicrequestforauthorization
senttoanIssuerby am
erchantorAcquirer. Theresponsecanapprove, decline
orroutethetransaction.
• :
Authentication Acryptographicprocessthatvalidatestheidentity andintegrity
of datausedinsm
artcards.
• / :
Smart Card Chip Card Aplasticcardem
beddedw
ithanintegratedcircuit, or
chip, thatcom
m
unicatesinform
ationtoainterfacedevice. Chipcardsoffer
increasedfunctionality throughthecom
binationof significantcom
putingpow
er
anddatastorage. Chipcardsarecapableof holdingm
ultipleapplicationsand
som
etim
esarereferredtoasM
ulti-ApCards.

15
Definition of Terms
• :
Online Authorization Am
ethodof requestinganauthorizationthroughadata
com
m
unicationsnetw
ork otherthan voicetoanIssuer, an authorizingprocessor,
orstand-inprocessing.
• :
Offline Authorization Am
ethodof processingatransactionbetw
eenthecard
andterm
inal atthepointof transaction without sendingthetransactiononlineto
theIssuerforauthorization. Transactionsaresentinbatch form
attotheprocessing
system
s.
• :
Proces s or A vendoractingastheagenttoabank thatprovidesauthorization,
clearing, orsettlem
entservicesform
erchantsandbanks.
• :
Hos t Sys tems Acom
putersystemusedby anIssuer, Acquirer, M
erchant, Client
orVendortoperformin-houseprocessing.
• :
Interchange Thefeesm
erchantspay tothecardassociationsorcom
panieson
thetransactions, usually a%of thesaleprice.

16
Card Indus try Lands cape
The
Why!
The
Players
The
Programs
Specifics
The
How!
Psychology of a card program
Cardholder Corporate
Sponsor
Merchant
/ POI
Access Device
(Card, Transponder,
Terminals ….)
Rewards
(Points,
coupons…)
Program
(Loyalty supplier,
database, rules)
Collateral
(setup, statements,
printed materials)
Technology
(Systems, processing, hardware, firmware, Issuing)
Banks
Issuing and
Acquiring
Processor

17
Trans action Breakdown
0%
70%
30%
0%
/
Catalog
Phone
5%
95%
0%
0%
Web
0%
30%
10%
60%
In Store
e C u r r e n
*
c ie s
C a r d
C h e c
k
C a s h
* Represents e-coins/e payment services, direct deposit

18
Card Facts
• 2000-M
asterCard's20,000m
em
berinstitutionshadissuedover
437 m
illionbrandedcardsw
orldw
ide, 15.4percentm
orethanthe
previousyear. Thenum
berof cardsissuedintheUS reached
235.1 m
illionin2000, 16percentabovethe1999level.
• M
asterCardassociationgenerated$857 billioningrossdollar
volum
e(GDV), w
hich includesbothpurchaseactivity andcash
transactions, representinga21.5percentincreaseon 1999. Inthe
fourthquarterof 2000, GDV rose19percentto$231 billion. Inthe
US, full yearGDV registereditshighestgrow
thrateinsixyears
havingrisen20.2percentto$423billion.
• M
asterCardhas21 m
illionacceptancelocationsw
orldw
ide, a12.7
percentincreaseon2000.
• 1998-Visahadissued655m
illioncards, generatingsales
volum
eof $1,4trillionandw
asaccessibleat488,585ATM
s.

19
Card Facts
Affinity Cards
• M
BNACorp. TheW
ilm
ington, Delaw
are-basedissuerissues
cardsfor4,000groups, rangingfromvirtually every collegeand
university intheUS totheInternational BridgeClub. The
com
pany's2000annual reportsaysitsaverageaccountbalance
w
asUSD$3,519, com
paredw
iththeindustry averageof USD
$2,311. Theaveragetransaction valueforM
BNAcustom
ersw
as
USD$129, com
paredw
iththeindustry'sUSD$99.
• FirstUSAhasm
orethan2,000partnershipprogram
s, including
relationshipsw
ith Am
ericaOnlineInc., M
icrosoftCorp., and
Yahoo! Inc.
• Accordingtoassociationestim
ates, about40to50percentof
cardsissuedw
orldw
idearem
ultibranded(eitheraco-branded,
affinity, orloyalty card), alevel thatsom
esay isthesaturation
pointforthem
arket.

20
Card Facts
Affinity Cards
• M
asterCardhasm
orethan 12,000co-brandedandaffinity
program
sw
orldw
ide. Visahasabout9,000m
ultibranded
program
sw
orldw
ide. About20percentof itsUS cardbaseisco-
brandedoraffinity.
• Autoandairlinescardseachaccountfor23percentof theco-
brandcardm
arket, follow
edby retail cardsat19percent,
accordingtoVisaandM
asterCardfigures.

21
How Money Is Made
• M
asterCard&Visaarenot-for-profitassociations, w
hichsupport
m
em
berbanks, w
hichshareacom
m
onnetw
ork
• Am
erican Express&DiscoverCardare, for-profitcom
paniesand
ow
ntheirow
nnetw
orks
• All cardassociationsandcom
panieschargean interchangefeeto
them
erchantsthatoffertheircards
Ranges:
– M
asterCard&Visa1.2%to3%
– AM
EX 2.5%to5%
– DiscoverCard1.2%to4%
• M
C&Visaissuingbanksgetacutof theinterchange(betw
een.
03%and1%basedonsizeof issuingvolum
e)
• AcquiringBanksgetacutof theinterchangefee, plussom
etim
es
aprocessingfee(betw
een.002%and1%)

22
How Money Is Made
• Processorschargeafeetohandletransactionbundlinganddata
reporting, etc. Rangebetw
een1 centto25centspertransaction
• Cardissuerschargeconsum
ersafeetohaveacard, ranging
from$25ayearto$300ayear
• Purchasecardschargeyearly feeson reportingandfiltering
support(rangefrom$50,000to$200,000ayear)
• Costpercard, by cardm
anufacturesrangefrom10centsto$5
dollarsbasedonthetypeof card(i.e. sm
artcard)
• Breakage&float

23
Types Of Cards
• Charge Cards
– Am
ericanExpress
– Retail Store/PrivateLabel
• Credit Cards
– Visa/ M
asterCard
• Secured Credit Cards
• /
Purchas e Procurement Cards
• /
Debit Check Cards
• -
Stored Value Cards
– Gift Cards
– PhoneCards
• Members hip & Other Cards
• Smart Cards

24
-
Types Of Card Charge
• Charge Cards
– Am
ericanExpress
– Retail Store&GasCards
• Interes ting Points
– Nolineof credit –m
ustbepaidoff eachm
onth
– Heavy penaltiesforlatepaym
ent
– Inthepast m
ost retail storesofferedone
– Profitablefor thestores
– Singleretailerversionlim
iteduse
– Service&extendedw
arranty salesopportunities

25
–
Types Of Card Credit Cards
• Credit Cards
– Visa/ M
asterCard
– Affinity Cards
– AirlineCards
– Lim
itedinw
hat canbedone
– Paym
ent pretty straightforw
ard
– Requirescredit check &approval
– M
arket seem
stobeat saturationpoint
– Operatesonan openplatform

26
-
Types Of Card Secured
• Secured Credit Cards
– Target m
arket iscredit consum
ers
– Requiresadeposit of betw
een$500and$2,000
– M
onthly paym
ent isrequiredotherw
isedrawdow
non
depositandhighpenalty
– Requireshighm
aintenanceandyearly fees
– Operatesonan openplatformw
ithsom
elevel of
authorizations

27
/
Credit Debit Online
Trans action Proces s ing
Legacy Hosts
Visa or MC systems
Processor
-Merchant accepts card
-Validates card by
signature check or PIN
-Processes transaction
-Consumer’s bank approves
transaction, sends back to
merchant
-Settlement will post to statement.
Request
Auth
Settlement
Request
Auth
Settlement
-Merchant’s bank initiates
transaction -Routes to locations
determined by card ids for approval
and processing
-Collects card ID/number, Merchant
ID, Amount.

28
-
Types Of Card Purchas e
• /
Purchas e Procurement Cards
– Allow
sforfiltering/selectiveuseviaSICcodes(i.e.
hotels, fuel, etc.)
– Spendinglim
its(daily, w
eekly, m
onthly, by category)
– Intensereporting&tracking
– M
aintarget B2B&corporatetravel
– Operateonanopenplatform
, w
ithsom
elevel of
tabling/filtering

29
/
Purchas e Procurement Card
SIC Filtering
Visa or MC
systems
Processor
-Validates card by
signature check or PIN
-Merchant;s bank initiates
transaction
-Processes against SIC filter
-Routes to appropriate locations
-Approves or Declines
transaction
-Posts to statements on
settlement
Request
Auth
Settlement
Request
Auth
Settlement

30
– /
Types Of Card Debit Check
• /
Debit Check Cards
– StartedoutasATMonly card
– Requiresapin
– Accesstoabank/checkingaccount(continual deposits)
– Nocreditline(insteadanoverdraftline)
– Concern by retailersonfees
– Runsonbanktransactionnetw
orks(Interlink andM
aestro)
– Netw
orksoriginally designedforbankstoshareinform
ation
– Operatesonan openand/orclosedplatformw
ithsecurity
– Filtered(selectiveuse) andopenavailable

31
Debit Offline
Legacy Hosts
Visa or MC
systems
Processor
Batch Request
Auth and Settlement
Settlement
Request
Settlement
-Validates card with PIN
-Collects batch data and formats
clearing transaction
-Approves or Declines transaction
-Routes to appropriate locations
-Posts to statements
Auth and Settlement

32
–
Types Of Card Stored Value
• -
Stored Value Cards
– GiftCards
– PhoneCards
– M
all Cards
– GasCards
– OpenandFiltered(selectiveuse) fromonestore, toachain,
toam
all
– Fundsarepre-loadedon thecard–m
ostoncespentare
disposable
– M
ostareanonym
ous
– M
ostoperateonaclosedplatform

33
Stored Value
-Cards are preloaded with
points.
-Merchant requests
transaction
-Verifies Card
Legacy
Hosts/filters
Visa or MC
systems
Processor
Request
Auth
Settlement
Request
Auth
Settlement
-Transaction processes like
Debit
-Card is validated against
stored value hosts or filtering

34
-
Types Of Card Other
• Members hip & Other Cards
– M
ost likely nopaym
ent involved
– Account &
/or m
em
bershipID/ num
ber
– Discounts/ punchcards
– Special access/ areas
– Purchaseoractivity tracking
– M
agneticstrip&/orbarcode
– M
oreaboutbelongingtoaclub/group
– Operatesonaclosedplatform
– Loyalty &frequency tracking

35
Members hip Card
-Card is accepted
-Checked against internal
database
-Can be routed to third-party
database through processor.
Internal
Database
Processor
3
rd
party
Database
Example:
Blockbuster
Example:
Dining Ala Carte

36
–
Types Of Card Smart
• Smart Cards
– M
ulti functional (debit, stored-value, credit)
– Sim
plecardstovery com
plex(basedonchiptype)
– Highsecurity &fraudprotection
– Requiresspecial reader
– Contact&contactlesstechnologies
– Operatesonclosedandopen platform
s
– Canhavem
ultiplecurrencies(i.e. cash, points, etc.)

37
Smart Card
-Card and Terminals authenticated with
cryptograms
-Obtain PIN, if needed
-Verifies static data on chip
-Processes static programs offline
-Sends transaction online
-Routes to any internal legacies
-Verifies risk parameters on card
Legacy Hosts
Visa or MC
systems
Processor
Online Request
Auth
Settlement
Online Request
Auth
Settlement
-Validates card and
transaction data
-Routes to hosts
systems
-Processes settlement
-Formats the crypto authentication
request
-Routes and initiate online
transactions.

38
Smart Card Overview
E le c t r o n ic Tic k e t in g &
A u t o m a t e d A ir Tr a v e l
P r o c e s s e s
S p e c ia l O f f e r s a n d
Lo y a lt y P r o g r a m s
A u t o m a t e d
C a r R e n t a l P r o c e s s e s
-
E P u r s e
E n h a n c e d C u s t o m e r
In f o r m a t io n
C o r p o r a t e S e c u r it y
A u t o m a t e d Lo d g in g
P r o c e s s e s
POS / Merchant's
Logical & Physical Access
Voucher Replacement
Target Marketing and
Expandable to other
Locations
Mobile Commerce
• : 101
Smart Card
•
The Market
•
Smart Cards in Loyalty
•
Les s ons Learned

39
His tory of Smart Cards
•Sm
artCardshavebeenaroundsincetheearly 70’
s. Thepatent
w
asregisteredin1974.
•Com
m
ercializationstartedintheearly 1980’
sw
ithphonecards.
•In1993, therew
ere300m
illionSm
artCardsissuedinthew
orld.
(80%w
erephonecards)
•In1998, Am
exBluew
asintroducedinUS.
•In2000, vendorsshipped1.6billionchipcardsw
orldw
ide, of w
hich
541 m
illionw
erecardsw
ithm
icroprocessor chips, up36%fromthe
yearbefore.
•
In2005, vendorsw
ill shipanestim
ated2.4billionof thehigher-end
m
icroprocessorcards, half of w
hichw
ill besubscriberidentity
m
odulecardsform
obilephones

40
• Asm
art cardresem
blesacredit cardinsizeand
shape, but insideit iscom
pletely different
• Asiliconchipbeneathacontact plate
• Thesilicon chipisasm
all com
puter w
ith8-64bit
m
icroprocessor
• It hasthesam
eprocessingspeedsasoldcom
puters,
suchasTandy
?
What is a Smart Card

41
!
Smart Card at a Glance
Silicon
Operating System (MULTOS, JAVA, Windows)
Applications
EMV Loyalty Wallet Misc.
Appl.
Contact Plate
1234 5678 9012 3456
Joe Smith

42
?
Why Smart Cards
• Security andfraudreduction
• Interactive
• StorageCapacity
• Dynam
icdow
nloading
• :
Side Note OutsidetheU.S., Sm
artCardusehas
aggressively takenplacebecauseof tw
om
ajor
factors:
1. Telecom
m
unicationsisvery poor &costly
2. M
ajority of transactionsareoffline

43
Types of Smart Cards
• M
em
ory Card: Noprocessingcapability
• Contact
• Contactless(Proxim
ity): UsingRadio
Frequency
• Com
bi-Card
• TranspondersorKey Fob
OperatingSystem
s
•
JavaCard
•
M
ultos
•
M
icrosoftWindow
sforSm
artCards

44
Fraud and Security
• M
agneticstripetechnology rem
ainsinw
ideuseintheU.S.
How
ever, thedataonthestripecaneasily beread, w
ritten,
deletedorchangedw
ithoff-the-shelf equipm
ent.
• Toprotecttheconsum
er, businessesintheU.S. haveinvested
inextensiveonlinem
ainfram
e-basedcom
puter netw
orksfor
verificationandprocessing.
• Them
icroprocessor onthesm
artcardisthereforsecurity. The
hostcom
puter andcardreaderactually "talk" tothe
m
icroprocessor. Them
icroprocessorenforcesaccesstothe
dataonthecard.

45
Fraud and Security
• Sm
artcardsareprotectedw
ithapublic/privatekey
infrastructure:
– Digital Signatures
– Cryptography toperform
:
• DataIntegrity
• Authentication
• Non-repudiation
• Confidentiality

46
?
Why are Smart Cards Safer
• Builtininteractivecapabilities
• Personalizedcryptography
• Tam
perresistant, cannotbereproduced
• Createscardpresentenvironm
ent
• Individual risk param
eters
Note: Security directly contributestoprice.

47
Standardization
• EM
V (Europay, M
asterCardandVisa)
– Cardspecifications
– Term
inal specificities
– Applicationspecifications
• Cross-border concerns
• Howarethey doingsofar?

48
Common Us es of Smart Cards
The most common smart card applications are:
• Credit cards
• Electronic cash
• Computer security systems
• Wireless communication
• Loyalty systems, like frequent flyer points
• Banking
• Satellite TV
• Government identification

49
Common Applications
• Loyalty: M
ultipleprogram
s, tickets, points, coupons,
one-to-one.
• Network Acces s : secureem
ail, securesign-on, w
eb
access.
• :
Payment Securetransactions, m
ultipleaccounts.
• :
Travel reusabletickets, virtual ticketing, linksto
paym
ent applicationsandsoftw
are, Autom
ated
check-in, reducedfraud.

50
Smart Cards In Other Countries
• Sm
art cardsarem
uch m
orepopularin Europethan
in theU.S.
• InEuropethehealthinsuranceandbanking
industriesusesm
art cardsextensively. Every
Germ
an citizenhasasm
art cardforhealth
insurance.
• Even thoughsm
art cardshavebeen aroundintheir
m
odernformfor at least adecade, they arejust
startingtotakeoff in theU.S.

51
!
Where The Smart Card Market Is Headed
• .
Card is s uers want chip card to reduce fraud
• - .
Anticipates multi aps will attract cardholders and trans actions
• Chip Manufacturer and Hardware Suppliers are s howing los s es
• …. .
Readers are not being adopted even when free
• .
Keyboards are progres s ing
• .
Merchant migration is happening
• ( . .. , )
Gimmicks are more s ucces s ful than functions i e Blue Clear
• .
Internet trans actions are “s eeming” more s ecure

52
The Current State of the Market
American Expres s
oLaunched“
Blue”
Septem
berof 1999. Noww
ithover2
m
illioncards.
oApplications: SecureAccess, W
allet, Reader, BlueLoot
oRollingout tom
ultiplecountries, Business, Student.
oDecom
m
issionedW
allet
oFocusingonpalmcom
putingandm
obile.

53
Vis a USA
oVisaUSALaunched“
sm
artVisa”
Septem
ber 2000
oOver3m
illioncardsw
ithProvidian, FirstUSAandFleet.
oApplications: Paym
ent, Access, Loyalty, Reader.
oLaunchedTarget POS (Providianm
adefirst transaction).
oHypercom
, Vital andNational City team
ingupforPOS
oPushingLoyalty asdriverfor m
erchant

54
M
asterCard
oCitibankplannedSeptem
ber2001 launchof 4m
cards
oApplications: e-cash, loyalty, e-ticketing
oStrongalliances, yet M
ultos-based.

55
Loyalty and Smart Cards
• M
ulti-apfunctionsareprim
eforloyalty, yetdifficulttopleasethe
w
holem
arket.
• Closedenvironm
entsaregoodexam
plesandripeforloyalty.
• W
ill supply m
oresecurity.
• M
arketw
ill notadvancew
ithoutm
erchant.
• Havenotprovedusablefunctionsarem
oresuperiorthanm
ag
stripe.
• W
hattheindustry islookingfor isa“
giftcardonsteroids.”

56
Opportunities for Loyalty
• Relationshipm
anagem
entonthecard
• M
ultipleearningandredeem
ing
• Individualizedinform
ationandpreferences
• Pointsandprogram
sheldlocally oncard
• Infostoragecapacity
• Linkstodatabases

57
Obs tacles In Adoption
• Infrastructure
• Easeandconveniencew
ithM
ag. Stripe
• Costof cardandconversion
• RetailerROI
• Cardholder confidentiality
• Standardization

58
Les s ons Learned
• Versionandprogramcontrol
• Applicationsegregation
• Transactionprocessingchanges
• Card/programexpirationdates
• Replacem
entcards
• Branding
• Servicing
• Inform
ationm
anagem
ent/m
ultipledatabases

59
A Quick Review
Frequent Flyer & Card Programs

60
• 1980,
Prior to FFPs Not Pos s ible
– AirlineIndustry Regulation
– Lackof Infrastructure
• Dominated by Uns ophis ticated Offerings
– M
erchandise&CouponBased
– S&
HGreenstam
ps
– RaleighCigaretteCoupons
• 1981 Regulatory & Market Changes Give Birth To FFP
– Am
erican inventsfrequentflyerm
iles
– Loyalty Becom
esIm
possibleWithoutAPlannedProgram
– Hertz joinsandsubsequently drops, citingthehighcosts.
Laterrejoinsafterdram
atically losingm
arketsharew
ithouta
FFP. Today Hertz belongsto20FFPs
– Afterin-houseFrequent-Stay Program
s, hotelsconcludethat
thegreatestm
arketingbenefitsstill com
efromtheFFPs

61
• " ' .
We didn t want an FFP But it came to my attention that FFPs
.
were s iphoning bus ines s travel away from us We did it
,
defens ively and I think if we had not done that we would
."
have been terribly dis advantaged
- Herb Kelleher, President, Southwest Airlines
• 20 9.77
Firs t Years Of FFP Trillion Miles Accumulated
- Source: InsideFlyer Magazine 2001
• 1985 - Banks Team Up With Airlines
• -
Co branded Cards Wildly Succes s ful
– Averagespendupto10xhigher
– Activeaccountrateupto80percentorhigher
– Attritionandacquisitioncostsdecline
• 150,000 1981 200,000,000 2001
members in to members in

62
• 1991:
By All major airlines and banks es tablis hed exclus ive
relations hips and Hundreds of credit card is s uers locked out
• 1994: –
“Virtual Airline” is Born Generic Mile Programs
• :
Miles by a different name
– SingleBrandedM
ilesvs. Co-brandedM
iles
– Genericvs. BrandedPoints
– Non-RestrictivePoints–Any AirlineIn TheW
orld
• :
How Generic Points Work
– SoldtoOver125of thelargestUS Banks
– Consum
erAcceptance: fees$25to$75
– SpendRanges: $8,000to$22,500ayear
– Officially Sponsoredby M
asterCard
– Am
explays“
FollowtheLeader”
– $200Billion+ SpentonEnrolledCards
– NoneedtoCo-brandw
ithanairlinepartner

63
:
Top Banks With Unres tricted Programs
• Capital One
• GE Capital
• Travelers Bank
• Direct Merchants
• Bank One
• Wells Fargo
• Hous ehold Bank
• Town North
• Citibank
• Hous ehold Credit
• Firs t USA
• Fleet
• Morgan Stanley Dean
Witter
• Chas e Bank
• Charter One
• MBNA
• HSBC
• Comerica
• Merrill Lynch

64
’
Loyalty Learning s
• 71%of consum
ersif FFP saidthey w
ouldn’
ttrade
theirfrequentflyerbenefitsforlow
er airfares.
Source: Frequent Flier Magazine
• Theprovenadditionof m
ilescandriverepeat
purchasesandm
axim
izecustom
er lifetim
evalue.
Source: Hambrecht & Quist
• Consum
erschargeabout$3,200ayearonatypical
creditcard–addm
ilesandthey spendm
orethan
$18,000ayear.
Source: Bank Rate Monitor

65
+ +
Univers al Mile Network Card
300 Miles 800 Miles
250 Miles
100 Miles 375 Miles
300 Miles
$ 300 $ 300
$250
$ 100 $ 75
$ 300
Gas & Oil
Grocery Electronics Trip TeleCom
Retail
(online & offline)
+ + +
+ +
The Network as a Catalyst for Increased Spend and Activation
Miles Earned Through Partners: 2,125
Miles from Card: 1,325 +
Total Earning that Month: 3,450 +
PLUS all other
card purchases
outside the
partner network
$
Purchases on
card at partner
retail locations
XYZ BANK
$1,325

66
+ +
Univers al Mile Network Card
$0
$100
$200
$300
$400
$500
$
0
$
2
0
0
$
4
0
0
$
6
0
0
$
8
0
0
$
1
,
0
0
0
$
1
,
2
0
0
$
1
,
4
0
0
$
1
,
6
0
0
$
1
,
8
0
0
$
2
,
0
0
0
$
2
,
2
0
0
$
2
,
4
0
0
Increase
in
Monthly
Charge
Volume
(in
$Millions)
* Revenuefigurebasedon2.9% of grosschargevolum
ein interchangeandm
iscellaneousfees, plus60% revolvingbalancesat13.9%annual interest.
Average Monthly Spend
400%+ 100 + .
Incremental monthly revenue volume increas es & revenues increas e $ Million a year
Sample Card Issuer with 200,000 cards
Increased
Spend
Increased
Activation
Increased
Acquisition
TOTAL
$ 4.0 M
$ 2.7 M
$ 1.9 M
$ 8.6M
$ 48.0 M
$ 32.8 M
$22.3 M
$ 103.1M
Monthly
Revenue
Increase
Annual
Revenue
Increase
EXAMPLE*
Incremental monthly
charge volume goes
from $72M to $314.2M
—an increase of
430%

67
Card & Mile Is s ues To Keep In Mind
• Attainability Of TheProgramM
em
ber: Lim
ited
EarningsCapability = Short-TermLoyalty &Interest
• SinglePartner, StandAloneProgram
s: EvenTop
Custom
ersCan’
tM
akeForASuccessful Program–
ItRequiresANetw
ork
• JustBecauseThey Carry YourCardDoesn’
tM
ean
You’
veCapturedTheirHeart: "The research shows
clearly that the existence of a loyalty card scheme is
not associated with a degree of loyalty in shopping
habits." -Source: Customer Loyalty Today

68
–
Trends Relations hip Convergence
Wireless Data
Availability
Security Loyalty

69
Thank You For Your Time
Kim Resch, Founder and President
Creative Commerce Group, Inc.
is dedicated to the support of their
client’s needs and solutions. Each
client offers unique and special
challenges, whether in
technology, in concept
development, in speed to market
or hardware to make it happen.
But through disciplined project
management, we have helped
clients' launch new products
successfully, time-and-time again.
Decision making around technical issues is expensive.
Think-tank atmospheres are vital, yet difficult and
expensive to implement in corporate America. Efficient
implementation is the key to success. It is not an
environment for a learning ground. Let us help with:
•Resources for the Emerging Commerce Industry
•Smart Card and Magnetic Stripe Solutions
•Hardware Equipment and Implementation
•Stored Value Card Applications
•Loyalty Strategy Specialist
•Project Management Formula “Methodlogically”
636-861-9850 or Kim@ccg-i.net
www.CreativeCommerceGroup.com

70
Thank You For Your Time
David Carrithers, Chief Bee Keeper
Providing consulting services for business individuals looking for honest
and straightforward counseling, coaching & implementation of business
solutions that improve profit performance and loyalty with employees,
channels and customers. www.BusinessHive.com
707-484-3620 or e-mail David@BusinessHive.com
:
Generating Res ults Through
TargetedIndividualizedCoachingProgram
•Im
provedCustom
er &Em
ployeeLoyalty
•EnhancedProduct, M
arket &BusinessDevelopm
ent Results
• ProfitableBrainstorm
ing&Product Creation
•Faster &M
oreAccurateProduct &BusinessLaunch M
anagem
ent
•UnbiasedIncentiveProgramAssessm
ent &Support
•Dynam
icOrganizational Developm
ent

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