Foursquare’s new deal with American Express will allow AMEX cardholders to save money on purchases at select retailers including Sports Authority and H&M. As important as the deal is, I think the technology is more important.
We’ve heard a lot about NFC lately. Products like Google Wallet can talk to the payments network and transmit your credit card, loyalty program and promotion information.
I’m sure it will happen over time, but the benefits are marginal at best. Yawn.
What’s really exciting is what you could do if you flipped the model and had the payment networks talk to your phone. That’s exactly what foursquare is doing. When you redeem an offer, American Express sends a confirmation to your phone.
The payment network can reach out and touch your phone. That’s huge. That enables a lot of possibilities:
- Risk reduction and increased convenience. If you’ve ever been traveling and had a card rejected because it was flagged as suspicious, you know how frustrating this can be. Instead of declining the transaction, it would be routed to your phone where you could authorize it. This also saves a phone call to unblock your account. Fraud reduction, more transaction volume and operations cost reduction. A credit card company’s trifecta.
- Online transaction authorization. Similar to above, a notification to your phone could be used as secondary verification of online transactions.
- Parental authorization. Parents could provide a restricted prepaid card to children. On every transaction, they could remotely approve or deny it. Some merchants could be automatically authorized. This would be a great addition to American Express’s PASS product line.
- Promotions. Offers based on your recent purchases and location could be sent while you’re in a shopping mood. If you just made a purchase at mall, you might get an offer for discounts on dinner and a movie.
- Access for the blind. A text-to-speech engine on the phone could provide an overview of the merchant and amount to help the blind.
An application like this also eliminates the two-sided market problem that NFC has. As much as Google would like to have NFC terminals everywhere, that will take a long, long time. Merchants don’t have to do anything to the installed terminal infrastructure to make this happen. It’s all between the backend and your phone. It also works with a much broader base of phones than NFC.
This type of integration also eliminates the need for training retail employees and doing POS integration. These are both significant hurdles to running promotions.
Loopt today announced a product called u-Deals that turns the Groupon model on its head.
Instead of a large team of sales people who go out and sell businesses in anticipation of consumer demand, Loopt is trying to collect the consumer demand and use it to generate merchant interest.
It’s an interesting twist, but it has a lot of challenges. The biggest challenge is cannibalization. People are going to want discounts on places they already frequent. Businesses generally don’t want to offer huge discounts to regulars. If they want to reward someone, they don’t need to pay a hefty cut to a deals provider to do it.
Here are some others:
- The places that come to mind to most people are the popular places. Those places typically don’t have an incentive to discount. If you’ve already got a 1-hour wait for tables on a Friday night, why would you lower your prices? That would be silly. I would really love a discount to flour+water, but I’m not getting one.
- Groupon and LivingSocial have set unrealistic expectations for people in terms of discounts. Many businesses can’t afford to offer such steep discounts. I would expect that consumers would ask for similar steep discounts and the businesses would refuse.
- The businesses that typically need to offer deals are businesses that people haven’t heard of. The deal is a mechanism of creating awareness of a business. Obviously this doesn’t work with the Loopt model — in order to create the deal you have to be aware of it.
- Consumers are generally passive and reactive. u-Deals requires consumers to do too much work in exchange for an uncertain payoff. Even if you could get all of your friends excited and wound up about it, there’s a good chance the business doesn’t accept the deal. I don’t want to risk my social capital like that.
- The model doesn’t work for many categories. Restaurants don’t generally offer group discounts. (Despite the name, Groupon isn’t a group discount.) It may work for things like amusement parks.
- There is a lot of latency. With Groupon and the other daily deal providers, you can use your deal within 1 day of seeing it. With Loopt, you’d have to request a deal, encourage your friends to request it, wait for Loopt sales to close a deal and then redeem it. This could take days, if not weeks.
foursquare offer at RadioShack
I stopped in at Radio Shack last week to take advantage of foursquare’s 20% off newbie special on an iPod Touch. (It’s a great deal. 20% off a current generation Apple product is tough to find.)
The clerk I talked to had no idea what I was talking about. He reluctantly brought over the manager. She had no idea what I was talking about. She stared at the offer on the screen and couldn’t figure it out. She tried calling another store. Again, no idea what was going on. Then she called Radio Shack’s POS support line and was on hold for about 20 minutes.
If I were an ordinary customer, I would have been fed up and left. But I like to see how these things play out and consider it market research, so I let it go on. I amused myself as the manager spent her time on hold trying to sell me batteries, extended warranties, screen protectors, armbands and pretty much anything else that was within reach.
I asked if she could just override the system and add the discount. No, store managers don’t have that discount. Finally, she randomly entered promotion codes and figured it out.
Thirty minutes after I entered the store I left with my iPod. During that time she couldn’t help other customers. It was’t a great experience for me, the other customers, the store or foursquare.
Clearly the offer code was not a single use code or she wouldn’t have been able to guess it. Either Radio Shack needs to get much better at training or they need to put POS instructions right on the foursquare offer. (They also need to better staff their POS support desk. No one ever picked up.)
This isn’t limited to foursquare or Radio Shack. I run into this all of the time when trying to redeem mobile offers. My default expectation is that it won’t go smoothly.
That’s one thing that appeals to me about Square’s Card Case and Register. Because the POS system is integrated with loyalty rewards and promotions, here shouldn’t be a disconnect between the offer that I see on my screen and what the merchant sees on hers.