Rumors of the demise of the loyalty chip card market are greatly exaggerated. That’s the word from Catuity President and CEO Michael Howe, whose company last month took a major hit when mega-retailer Target Corp. announced it was phasing out its smart chip loyalty card program based around Catuity software.
“The loyalty program is alive and well,” said Mr. Howe. “I would call this a speed bump, something we weren’t expecting. We’re not privy to Target’s reasons, but we do know the system works. It has been user-tested by Visa and Target.”
The program, which began last year, allowed Target customers to obtain money-saving coupons through the smart Rewards Platform for Visa USA and Target Corp. The e-coupons could be obtained in Target stores or via the Internet. This technology, says Catuity, was the first to be used on a nationwide basis by a major retailer and it contained the Catuity software as part of the smart loyalty application.
Mr. Howe was reluctant to comment on the Target situation beyond what was stated in Catuity’s carefully worded press release.
What Mr. Howe re-emphasized, and the press release pointed out, is that the Target decision affects smart chip technology only: “Catuity is fortunate that our loyalty software supports a variety of consumer identification devices. While in this instance it was smart chip technology, the system works equally well for mag stripe, contactless, RFID or bar codes and we are hopeful that we can continue to work with Target in the future.”
Insiders told SecureIDNews that Target’s smart coupon program had experienced limited use by customers.
The Catuity press release went on to state that while the company is evaluating the Target decision’s impact on Catuity’s 2004 forecasted revenue and net income, “…we believe at this time it will be material.”
How “material?” According to the company’s Form 10K filing with the Securities and Exchange Commission in mid-March: “In 2003, approximately $3.1 million, or 62%, of our total revenue was for software development and support services for Visa and Target. In 2004, due to the phasing out of smart chip technology by Target, we anticipate that software development and support services related to the smart Visa Rewards platform for these two customers will be approximately $550,000. This is approximately $1 million less than we had anticipated in 2004.”
That same report stated that Catuity’s 2003 revenues “grew by approximately $2 million, or 68% over 2002 to approximately $5 million.” And. “as a result of the growth in our revenue and our on-going cost control efforts, the Company’s loss in 2003 was reduced to approximately $600,000 from a loss of approximately $2.8 million in 2002.”
Despite the Target setback, Mr. Howe is very optimistic about the future. The company has several other major clients and hopes for future work with Target. “The Target program is currently running, will run over the next year,” said Mr. Howe. “All is not lost,” he added. “We’re working to replace Target and we’re continuing to develop new software.”
Catuity started in 1993 in Australia working with smart cards “then we morphed into a loyalty software company,” said Mr. Howe. The company moved its corporate offices to Detroit, Michigan, USA in 2000, the same year that Mr. Howe, then marketing director for United Airlines, was hired as Catuity’s president. The company’s software development still remains in Australia and a sales/marketing branch operates in Arlington, VA.
Catuity’s focus remains on providing loyalty program management and e-coupon software to merchants, card issuers and processors. Its clients use the software to establish and administer loyalty and e-coupon programs that reward behavior by customers at the point of sale. As Mr. Howe pointed out, the Catuity system supports many forms of customer ID, including mag-stripe, smart cards and RFID tokens. The company says its smart card loyalty applet has been loaded on millions of chip-based credit cards and that its software is in use in more than 4,200 U.S. stores, including multi-lane mass merchandisers and local independent retailers.