Barcodes, Barcodes, Barcodes – What’s Next and Why Should You Care?

By Gerry Gilbert, Vice President, Product

Barcodes are a staple in everyday life. Invented in the 1950s, the possible uses of barcodes are endless, with their ultimate goal being to help simplify processes that involve entering large strings of data. Of course, that lends itself perfectly to gift cards. A gift card needs a unique identifier to tie that card to the amount of value remaining in a general ledger system.

From the very first of their kind – paper certificates – to the most recent iteration – digital gift cards – the form factor may have changed, but the simple premise of gift cards has not. Most merchants typically support two gift card formats: Magnetic Barcode (plastic magstripe) and a barcode version that can be digitized or printed. Some merchants have chosen to only support traditional Magnetic Barcode to allow them to use the same hardware for credit cards and to avoid investing in scanners at the POS. Of course, this can lead to inefficiencies at the POS when a retailer launches digital gift cards.Barcode image

The evolution from paper to plastic then to digital has allowed merchants to efficiently manage gift card programs that drive incremental value, reduce costs and increase customer satisfaction. The most recent form factor, digital, has allowed the customer to add these gift cards to mobile devices for on-the-go storage, helping to increase redemption and lift in-store sales.

The question then becomes: is the journey complete with the current support of barcodes that use scanners? Before answering that, let’s look more broadly to the larger payments space.

EMV – Coming to merchants everywhere

EMV (which stands for Europay, MasterCard and Visa) is a technical standard for processing payments that has been adopted by nearly all the major card associations. It utilizes “Smart Cards” that have a microchip embedded in the card, which allows the card to dynamically interact with the POS to provide unique data for that transaction. The goal is to move away from the antiquated plastic magstripe cards that are easy to fraudulently replicate. While Europe and a large percentage of the rest of the world have supported a form of EMV for years, the United States has been one of the last holdouts for this worldwide standard. This upgrade to the payment systems in the United States has been deemed so important that the card associations will be shifting all liability related to non-chip card fraud to the merchants in October 2015.

But what does EMV have to do with your gift card program? One could argue that merchants should follow in the footsteps of card associations and adopt the same technologies for a next generation gift card to reduce fraud, but I will leave that for another blog. The actual driving force for merchant change is related to upgrades to POS systems required by EMV – as merchants are investing capital in new POS hardware, they have an opportunity to align technologies and customer experience.

NFC – Coming to the majority of POS Hardware

NFC, or Near Field Communication, is a technology protocol that allows for wireless transmission of data. NFC technology supports EMV contactless standards. The technology, a topic of discussion in the payment space for years, is finally starting to see mainstream adoption through products such as Apple Pay and Android Pay (formerly Google Instant Buy). As merchants deploy new EMV hardware, it is likely that the new hardware will support NFC. In fact, hardware manufacturer Verifone claims that over 70% of the terminals it has sold in the U.S. support NFC.

So if you’re a merchant who has to support EMV and will likely get NFC support with no additional investment, what does that mean for your gift card program?

Convergence of Payments and Mobile Adoption

Typically, user behavior is hard to change. However, there is a perfect storm of alignment in technology, regulation, innovation and demographics that is pushing your customers toward embracing mobile payments.

There are a significant number of banks, processors and technical providers all heading in a similar direction, investing marketing dollars to encourage consumers to adopt. There is a growing user base, beyond the early adopters, who are embracing new mobile payment processes and will continue to do so. Starbucks – an early proponent of mobile payments from the Starbucks application – has seen phenomenal success with mobile payments, which last quarter accounted for 20% of all in-store sales.

Consumers will soon expect the gift card experience to mirror that of credit cards, which are moving in a mobile direction. It’s in the merchant’s best interest to align these technologies like they did with magnetic barcodes on plastic cards. In fact, some open loop gift card issuers are very excited to issue digital cards into wallets like Apple Pay, as it’s the first viable solution allowing mobile open loop cards to be used in retail settings. Merchants should be speaking to POS vendors, wallet providers, gift card processors and the technology teams responsible for native applications to determine a plan to evolve the gift card to allow NFC as the communication protocol.

NFC will be the next logical solution for merchants to support with their gift card program, which will ultimately deliver customer experiences consistent with other traditional methods of payment as those methods become increasingly mobile. Supporting a single communication method for both credit and gift cards will streamline technology and help drive down costs.

The barcode is dead, long live the barcode!

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