SMART LOYALTY

The concept of loyalty program is how to retain the existing customers to be loyal and attract new customers to become loyal customers. Based on this concept, below is how our solution works:

1. System Entities
The system comprises of the following entities:

  • Loyalty Application Operator
  • Merchants
  • Cardholder

2. Application Objectives
As a loyalty smart card application operator, the objective is to be able to generate profit by running such an application through value-add to the participating merchants and cardholders. As a matter of fact, this is the golden rule to any smart card application operator, i.e. all parties must benefit from the application. This is from the business point of view. From a technical point of view the system must be well designed - be flexible, scalable, manageable, cost-effective, upgradeable and able to satisfy the business objective. While it is easy to describe the technical objectives or pick them up from any book on system design methodology, it is easier said that done without intimate knowledge of smart card applications, design and implementation.

3. The Business Case
The business case of the loyalty smart card operator relies on the fact that if a merchant will to implement its own loyalty application it would cost him from tens to hundreds of thousands of dollars upfront (depending on the size and complexity of the system) and would require a team of IT professional to implement and later maintain the system.

Being a participating merchant as part of the loyalty application scheme, besides being able to achieve what the merchant will to implement his own loyalty program, there is also a tremendous saving in the implementation and running cost but also able to have a much bigger cardholder base. The application operator will also make publicity, mass mailing, customer profile and habit analysis and also forming of strategic alliance with other complementary merchants.

4. The Scheme
The loyalty smart card contains important customer profile and some hundreds of merchants loyalty program records, depending on the type of cards used. Each loyalty program is assigned a loyalty ID. This is to allow flexible marketing to the merchant so that the operator can even lease a loyalty program record to a merchant as a minimal service to more complete package of alliance, cross-redemption and data analysis. Each record contains:

  • Merchant ID
  • Alliance ID
  • Effective date
  • Expiry date
  • Bonus point details
  • Pointer to coupon file
  • Pointer to loyalty program rules
  • Record Message Authentication Code

The loyalty scheme awards bonus points based on the following:

  • Bonus point based on value of purchase
  • Bonus point based on quantum value of purchase
  • Bonus point based on quantum number of patronization
  • Bonus point based on special occasions

The number of bonus points to be awarded is parameterized via the merchant card, which serves as an initialization card and also the personalize the POS i.e. load in the security secret keys and secret codes, effective date and expiry date of the bonus record, bonus record ID, weight of bonus point to the monetary value etc.

5. System Components
Before being able to design the system that meets the application objectives it is mandatory to first know what are the system components and for each components what are the functional requirements of each sub-systems. The system components comprises of:

  • Loyalty smart card
  • Merchant Card
  • Card Personalization System
  • Front-end Terminal
  • Key Generation & Key Management System
  • Security Application Modules
  • Loyalty Back-end Host

5.1 Loyalty Smart Card
The number of cards to be issued in a successful loyalty application is in the order of hundreds of thousands to millions of card. The price and security of the card is very important. While memory card is attractive in term of cost, especially during the investment phase of the project, it does NOT mean that the security will be inferior to another system using CPU smart card. A lot depends on the experience and knowledge of the system designer as to how the security can be maximized. Important security, integrity and reliability technique used include:

  • Diversification of secret key and secret code for authentication and integrity protection
  • Dynamic changes of authentication and integrity secret keys and secret code with each transaction
  • Anti-tearing to prevent corruption of integrity / intentional tampering of data through card withdrawal in the mid of a transaction
  • Fraud prevention even if a card secret code is compromised.
  • Card mapping design and system key management is an important system design activity to the system and particularly to the card. It affects the system security, flexibility, upgrade-ability of system.

When the business case on the application is proven, the cards can be upgraded to higher capacity CPU cards which is much more cost effective based on cost per byte of card memory.

5.2 Merchant Card
Merchant card is an alternative to online initialization of the POS terminal. If the POS communication protocol is already been fixed because of existing host computer program it may be the only efficient method to initialize the POS. The merchant card initializing the POS is a secured way of downloading the secret keys and secret codes required by the system for the card to work with the terminal. Also loaded to the POS is the merchant loyalty program parameters which allows a generic loyalty application to work specifically for a particular merchant because the design of the application is parameter driven.

5.3 Card Personalisation System
Card personalization system is required to personalize the loyalty smart card and merchant smart card. Personalisation comprises of electrical personalization and graphical personalization. Magnetic stripe encoding is required only if the card needs to carry a magnetic stripe, usually required if the loyalty card is also a banking credit card or ATM card. Card Personalisation System takes an input file containing initial application data and cardholder data to be loaded into the card and returns an output file for the back-end host computer for audit and card management purposes.

5.4 Key Generation And Key Management System
Personalisation of smart cards requires the loading of secret key and secret codes into the card, beside the initial application data and cardholder data. Diversified secret keys and secret codes resides on the loyalty cards and master keys and diversified keys resides on the merchant card. Master key must be generated. Every year a new sets of master keys must be generated and pass down to the entire system. A card has a limited validity eg 2 years. Thus the system master keys changes without the need to recall and change the keys. The key generation and key management system implements these functions.

5.5 Front End Terminal
Front end terminal are devices accepting the loyalty smart card. The easiest to implement is standalone terminal (possible with a communication link to the host). However some big merchants may want to avoid double entry and wants the terminal to be able to interface to the electronic cash register (ECR) or electronic draft capture (EDC) terminal. This may involve re-configuring the ECR or worst modifying the ECR program and for sure modification to the EDC. Sometimes the ECR is also linked to the inventory system which can make modification risky.


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