Abstract
Electronic card payments are getting more and more popular, mainly because of their simplicity, convenience, processing time and high level of security. The fact that a single payment card is issued for a particular cardholder makes it possible to link a card to various services. In this paper, we investigated a usage of a payment card in the loyalty program that incorporates our Contextual Risk Management System (CRMS) to assure a novel intangible reward: Shorter transaction processing time. In the beginning, we emphasize the importance of soft benefits in modern loyalty programs and recall the risk management algorithms and the reputation system that has been used in the CRMS. Then, using an extensive dataset of 2.5 million payment transaction traces (collected within a year from 68 terminals) we estimate potential benefits for merchants and cardholders and try to predict an effect of this system for the future. We also discuss the impact of this system on the real and user-perceived security level.
Highlights
A loyalty program (LP) can be defined as “an integrated and interactive system of marketing actions that aim to make customers more loyal by developing a personalized relationship with them” [1]
It does not interrupt a payment process; Loyalty should be a part of the payment process and should not interrupt it [24], It will work with payment card emulated via a smartphone through the NFC interface, It does not need to enroll manually or online: sign up to the Loyalty Program during your payment, It does not require to download dedicated applications, carry another plastic card or print off rewards or coupons
The system is responsible for making the dynamic decision whether the cardholder verification should be performed during the certain transaction or not, It must be able to use some contextual factors in the decision-making process, It must maintain the level of risk caused by the usage of the system, The solution must be able to work with transactions performed using the contact and contactless payment cards, The whole solution must operate on tokenized card data ([53])
Summary
A loyalty program (LP) can be defined as “an integrated and interactive system of marketing actions that aim to make customers more loyal by developing a personalized relationship with them” [1]. That was our main motivation to propose a new non-financial incentive for loyal customers: shorter transaction processing time when a payment card is used [15]. We enhance our previous work and present simulation results of the CRMS using an extended dataset of productive transactions, containing almost 2.5 million records collected within one year. What is more, using the data collected from the terminals, we try to quantitatively estimate the increase of merchants’ income due to application of the CRMS in a newly proposed loyalty program. It shows an estimation of anticipated benefits from the usage of the CRMS, to quantitatively express profits of application of our.
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