The Future of Retail Technology

Imagine a day when your customers pay for coffee by scanning a cell phone, and play their favorite music at the gas pump with a quick swipe of a loyalty card. Well, ready or not, such technology is already out there and it’s coming for c-stores—the only question is how soon.

As the Millennial generation (ages 18-29) continues to filter into adulthood, with them comes a push for more paperless transactions.

The “cell phone generation” doesn’t like to write checks, rely on paper money or clip coupons, but according to a recent Pew Research study, three-quarters of them have a social networking profile and 83% sleep next to their cell phone. Armed with this information, retailers are now targeting customers with email campaigns, social networking pages and text messages.

Rutter’s Farm Stores, based in York, Pa., is one c-store chain at the forefront of mobile technology. Last year, Rutter’s, which operates 54 convenience stores in Pennsylvania, introduced mobile couponing through an iPhone application, and recently introduced a similar app for BlackBerry smart phones, with an app for the Droid following close behind.

The new apps, downloadable on the Rutter’s Web site, help customers find the nearest Rutter’s and also send coupons directly to their cell phones. Customers can register their Rutter’s Rewards cards using the app, and then click the “Rutter’s Rewards” icon to access their member number and bar code, which can be used instead of a Rutter’s Rewards card for transactions.

“Consumers are more mobile than ever, and Rutter’s wants to be right there with them,” said Scott Hartman, president and CEO of Rutter’s.

Solution Driven
Kickback Rewards Systems is also at the cutting edge of technology. Earlier this year it was one voted one of the top five companies for Expo Trends 2010 at NACStech. KickBack Rewards Systems offers, among other innovative products, Signature, a customer-specific pump top media solution.

A quick swipe of their loyalty card at the pump allows customers to access their favorite screen background, play their favorite music, get the weather report and view their loyalty point balance, all while pumping gas. What’s more, the screen also displays 2-3 customer specific ads for in-store products and allows customers to opt to have mobile coupons sent to their phones.

But just how far is smart phone technology going to go? Already eBay’s PayPal unit, Intuit, VeriFone and Square offer ways to pay for  transactions using a cell phone.

Square, for example, accepts credit card payments on any device with an audio input jack, including mobile phones. While Square exists more for personal transactions between friends, could similar technology be headed for c-stores?

“In the c-stores, it’s quite a bit away,” answered Trinette Huber, manager of information security for Sinclair Oil Corp., and a member of the PCATS data security committee. “Up to now any payment technology other than credit cards just hasn’t taken off.”

It’s true Americans love their credit cards, and in terms of data security, there’s no urgent push to adopt a new payment method, but that doesn’t mean the technologies aren’t inching their way closer.

Contactless payments, such as credit cards that customers can wave or tap at a sensor instead of swipe, are taking off in other countries, including in the U.K., but have not been widely adopted in the U.S. outside the transit sector.

The reason? The main benefit of the technology is speed, and credit card transactions are already pretty quick now that new rules allow customers to swipe-and-go on transactions under $25 rather than take time to sign a receipt.

“No one is complaining about the speed of their card swipe right now,” said Red Gillen, a senior analyst at Boston-based Celent, a research and consulting firm on technology and financial services.

Such tap and go credit cards require new hardware at the pumps, but don’t offer any added security benefit. In other words, it’s not cost effective. If a technology debuted that could completely remove PCI from a c-store, Huber said, that would be more likely to attract interest.

“Right now, no one is saying, ‘I’ve got a solution that eliminates you needing to deal with PCI,’ and until they do, I don’t see that getting adopted. Someone needs to start talking about how we get rid of PCI through these new technology methods, and then I think people will listen,” Huber said.

Gillen agreed, noting that it can cost a c-store $100-$300 or more to upgrade a terminal, depending on the technology already in place.

Seeing as most cards that offer contactless payments also feature a magnetic stripe, and only a small part of the population even has a card with contactless technology, retailers are not likely to rush into a costly overhaul. Gillen estimated that only about 175,000 stores across the U.S. currently offer contactless card readers, and only a fraction of those are c-stores.

Mobile Technology
The mobile component, however, is attracting interest in the industry and beyond. “Contactless payments via smart phone has been talked about for at least five years now as the holy grail of mobile financial services,” Gillen said.

Mobile payments would entail customers having a soft version of their debit or credit card embedded within their phone, along with a contactless chip that would communicate with the merchant’s card reader. The added benefit to customers, besides speed, would be the ability to see information about their account and transaction history right on their phones.

At convenience stores in Japan, payment by mobile phones has emerged as a preferred method. One reason for the quick adoption is that credit cards never caught on in Japan—partly because the country has a different telecommunications structure making card transactions much slower than in the U.S.—so retailers didn’t have the expense of ripping out credit card terminals to add the new technology.

Interestingly, in Japan, c-stores are driving the demand for the technology alongside the transit industry, having recognized the convenience, speed and capacity for mobile campaigns for coupons. McDonald’s, Gillen added, is a major player in the mobile marketing arena in Japan.

Gillen predicts that this sort of cell phone payment also is headed for the U.S., but not for at least another five years. Why the long wait? From an infrastructure perspective, customers would need a new chip in their phones, and to download a soft Visa or MasterCard into their phone. Unlike in Japan, U.S. c-stores would need to gut their old hardware and install all new readers. Getting right to the point, Gillen said, “Who is going to pay for that?”

Yet another hold up, a credit card in mobile form would require new software plus a chip in the phone, but neither phone companies nor banks want to pay for this, especially when no one is complaining about the current system.

Security Matters
Security wise, even as new technologies debut, most have already been breeched before they can even be implemented, Huber noted. What is really needed from new technologies, she said, is a system where crucial card data is no longer the responsibility of the merchant.

“Magnetic swipe data can be so easily replicated. If over the next 15 years we haven’t figured out how to move this data out of the retailers’ hands, it’s going to be ver
y costly,” Huber said. “We need to fix the cards or come up with new payment terminals that don’t have any way for thieves to get access to the data. I think (in the future) we’ll have devices that don’t allow merchants to ever store that data even though it exists within the merchant’s environment. It will immediately encrypt it and hand it off to processing banks and basically get rid of it.” CSD

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