Payments and Data

When Tesco first introduced its Clubcard in 1995, it was to enable it to capture data on its customers. Most people who use loyalty cards realise this. In return for the retailer being able to tie specific sales to an individual, that individual earns some kind of loyalty points.

It seems to be a win/win. As long as I’m happy giving you my information, you give me discounts or money off. I’m likely to spend more of my money with you, you learn even more about me. And so the cycle continues.

Of course many people aren’t really aware of how their Clubcard data is uesd. Dunnhumby is a wholly owned subsidiary of Tesco (it started out helping them to launch the service), and they sell data based around purchasing to anyone interested – including retail manufacturers. I might be shipping hundreds of thousands of boxes of cornflakes to Tesco each week, but I don’t know who is actually buying them. I could do a survey, but Tesco has their names and addresses!

The curious thing about the introduction of loyalty cards like the Tesco Clubcard is that retailers didn’t already know this information. Given that the vast majority of purchases made in a supermarket are with either a debit or credit card, you would think that it would be easy to maintain a list of cards used, and even in the absence of other data, they’d know that the person with your card number bought a box of cornflakes once a fortnight.

Well it turns out that some of them do track your spending patterns by card number. From a Guardian article last year:

“Waitrose and Asda also admit analysing aggregated payment card data to monitor “customer shopping patterns” (for example, items purchased) over time. Both stress this is common practice in the retail industry and that card numbers are not connected to an individual or an address. Sainsbury’s and Tesco say they do not track or monitor their customers’ payment cards.”

It’s true that they don’t know precisely who you are unless you’ve somehow furnished them with that detail – hence they still love to sign you up for a loyalty card. But there is information in your purchasing patterns, and the power of promotions etc. Even your absence from stores can be noted.

Which all takes us to what’s happening in the US and why it’s interesting at the moment. Because Apple Pay is launching over there, and it’s not being universally accepted by retailers.

There are a few things happening, and they’re related to card merchant charges and information capture.

First off, the US system of payments really needs upgrading. They don’t widely use Chip and Pin or NFC contactless payment methods. It’s mostly swiping a magnetic strip and then paying next to no attention to the signature. Cards are routinely taken away by restaurants to swipe, whereas in Europe we’re told never to let our cards out of our sight.

New schemes like Apple Pay would seem to address some of these issues. But of course it’s not as simple as that. When retailers accept cards, they have to pay for the privilege. Exactly how much they pay depends on the agreements they’ve struck with a third-party who will carry out the transactions for them. A massive retailer with many branches will do a good deal and pay relatively little. A smaller independent retailer may have to pay more. That’s why they sometimes require a minimum spend for a card to be used. The fees differ between debit and credit cards, and it’s why American Express isn’t always accepted.

Muscling in to that market to generate revenues from transactions is good for a company like Apple – and bad for incumbents. There is the small matter than iPhone 6 users are only a small subset of the market, but then we live in a world where Visa and Mastercard seem to co-exist.

Apple is cutting out the card merchant companies, and we must assume that since they regularly sell 79p/99c tracks in iTunes, they’ve done a good deal to make those transactions of value. And because you’ll be tying a single card to your phone (initially anyway), all the card suppliers want to make sure it’s their card your phone defaults to – ideally a credit card because there are fees to be made on that. Apple says that it doesn’t keep your data. But that’s not the case for others…

In the meantime, a bunch of retailers in the US are “clubbing” together to launch CurrentC, and they definitely do want to keep and share the data. In the first instance, those stores won’t accept Apple Pay. They want you to tie your NFC device – probably your phone – to your bank account, a bit like PayPal prefers you do. Then everytime you spend, the money is withdrawn directly, rather than through some kind of Visa or Mastercard network. That cuts out the card charges the merchants charge. And CurrentC definitely want to see what you’re buying. Their coalition will be able to share data with one another and provide a “Clubcard” style environment. You’d imagine they’ll incentivize consumers to use CurrentC once they launch.

You’d imagine that there will be other companies waiting in the wings with their preferred systems.

Personally, I’m not wholly sold on using my phone to pay for things. Contactless cards seem better – “card clash” notwithstanding. And I certainly won’t be participating in any scheme that collects my data like that (nope, I don’t have a Clubcard, a Nectar card or a Waitrose card). Mind you, according to this piece from Rory Cellan Jones at the BBC, even using cash, you can be tracked nowadays…