Can Interactive Cards Revive Merchant Cobranding?

After languishing for several years, credit and debit cards equipped with buttons consumers can use to choose loyalty programs or payment methods seem to be making a comeback of sorts.

"There's resurgence in co-branding that [this new card] technology is spurring, with music, entertainment and other interest groups…we're transferring away from a dependence on Baby Boomers and more toward Millennials, who are coming into their formative career years. Something like this card tech that they can use in real time will resonate with that demographic group," says Dennis Moroney, a research director at CEB TowerGroup.

UMB (UMBF) became the latest bank to adopt the technology, introducing its Visa ePlate card just before Thanksgiving.

"It's 'Generation 2.0 cards.' You could pay with credit or rewards points and choose by pushing a button. It's quite interesting," says Zilvinas Bareisis, a senior analyst at Celent.

The card works like this: Consumers use a smartphone or computer to choose two rewards "experiences" from a menu of retailers. When making a purchase, consumers can execute the programs by pushing a button on the card, or they can accumulate points. This is designed to make the card loyalty program more proactive since the consumer is making the choice electronically at the point of sale.

"The card is literally an electronic device. It has [nearly 80] electronic components in it. And it has buttons and lights. You are sending different information to the magnetic strip. It's a different tool that the consumer is using," says George Schmelzel, senior vice president of UMB Credit Card Services, a unit of the bank. 

Other banks such as Citigroup (C) have also used similar technology on cards to give consumers a choice to pay with points or credit.

Dynamics, a Pittsburgh-based technology company whose backers include Bain Capital Ventures and Adams Capital Management, provides the software and hardware for the ePlate card, including the ability to track usage and, if consumers allow, enable data to be used for targeted marketing. Dynamics, which also provides the tech for the Citi program, says the cards' batteries last about four years, and the cards are the same size and shape as traditional credit cards. Jeff Mullen, Dynamics' CEO, also says the tech can work with either magnetic stripe or EMV-compliant chip cards.

Analysts say there's not a huge market of providers of this technology right now, but the adoption by established companies such as Visa, Citigroup and UMB suggests traction. "This has been vetted by serious players. Visa can't risk their brand reputation by having this flop, and they will be talking to issuers about this," Moroney says.

The cards cost a bit more to manufacture — sources say at least twice as much as "normal cards" — but offer consumers added flexibility that should play well with higher end and younger demographics. Even as mobile payments take off, plastic cards aren't going anywhere and will likely claim a substantial share of consumer spending for years to come. "It's a bit like embracing new tech for checking. We aren't going to get rid of [cards], so let's get creative about how we use them," Bareisis says.

UMB, a $13 billion regional bank based in Kansas City, MO, hopes the new card technology will enhance partnerships with retailers by making loyalty points more engaging. The rewards are also designed to be narrowly focused and "experience" oriented, including live events such as concerts. Schmelzel says that on his card, he recently had selected Henry Cookson Adventures, in which he could earn points for an African Safari. "My wife's always wanted to go on a safari." He also chose a Toys for Tots charity program. "A customer will get an email after the transaction on progress toward the trip, so it's immediate," Schmelzel says.