Will Apple Pay kill Quidco?

Card-linked offers are a fast growing corner of the retail loyalty industry. These schemes, of which Quidco and Topcashback are the leaders, offer shoppers cash rebates for spend with participating merchants. The shopper registers for the scheme and their payment card number (PAN) is used to track each transaction. These schemes have been successful because:

  • Shoppers can use one card to access rewards from many retailers.
  • There is no need for vouchers or discount codes.
  • Retailers can participate without making an IT modifications
  • Retailers can generate immediate footfall by posting offers which the CLO schemes then communicate to their subscribers

There are also some drawbacks

  • CLO’s are manually intensive. Typically, once the scheme has signed up a new retail partner, it organises for a file of each day’s card transactions to be sent from the retailer’s merchant acquirer to a trusted third party. There is it scanned for participating cards and these transactions are sent to the CLO scheme. The scheme then works out which transactions qualify for cashback, sends a bill to the retailer for the cashback/scheme’s commission and credits the money to the shoppers account.
  • CLO’s can only be applied to the whole basket. The card payment transaction only carries the total value of the purchase. So, for a department store (say) there’s no way of telling whether the shopper bought cosmetics or a cricket bat. That makes CLO’s a very blunt instrument.
  • CLO’s are not real time. It takes 24 hours (at best) to process a transaction which means there’s no way of either confirming to the shopper that they have received a reward or of communicating to shop staff that this customer is entitled to special treatment. This makes the whole process impersonal for both the retailer and shopper and impedes brand building.
  • CLO’s are fundamentally insecure. They can only operate through one or more parties storing PAN’s. This is allowable under PCI rules provided they are stored with appropriate safeguards but carries significant risk. Fines and collateral damage in the event of a data breach are unpleasant. LoyaltyBuild, an Irish, provider was forced to suspend trading for four months following the theft of customer card details.

ApplePay launches today in the USA and in Europe in Q1 2015. Although Apple Pay allows shoppers to spend money on their habitual payment cards, it doesn’t use PAN’s.  This is bad news for the CLO industry.

In place of a PAN, a token is generated for each transaction. The token has the same architecture as a PAN. The first six numbers identify the bank that issued the card so that the transaction can be routed in the normal way. But the last ten digits change for each purchase. This means that CLO schemes won’t be able to use the PAN as a unique identifier with which to track their clients.

Quidco and friends won’t be out of business immediately. Not everyone has an iPhone (although Apple Pay won’t be the only payment method that uses the new tokenisation methods) and it’s plausible that CLO shoppers may ignore Apple Pay in order to keep the cashback flowing.

However, CLO schemes can’t rely on PAN’s in the medium term and would be well advised to invest some time in commercialising alternative ways of tracking where their members spend their money.

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