Instant redemption of rewards at the point of sale has been touted by many in the payments industry as the next logical step, yet card companies and merchants have been slow to develop and implement the necessary technology.
Most retailers' systems are not equipped to find out how many points a cardholder has accrued, and enabling them to do so would be expensive.
But Visa U.S.A., Total System Services Inc., and Morgan Stanley's Discover Financial Services have been quietly testing or developing ways to fulfill the promise of instant redemption - or come close.
Since December, Visa has been allowing certain holders of its Signature cards to redeem discounts at participating restaurants without providing a coupon.
The redemptions are not really instant, because the discount is not subtracted from the charge until the cardholder's monthly statement is calculated.
However, Tim Attinger, Visa's senior vice president of product development and management, said the restaurants and issuing banks are transmitting to each other the number of reward points a customer has accumulated - a prerequisite for instant rewards, analysts say.
Mr. Attinger said his association is testing other ways to let customers redeem rewards at the point of sale. "We are just getting started in delivering these capabilities," he said.
TSYS, the Columbus, Ga., processing giant, says it has been helping Canadian Tire Corp. offer customers the option of redeeming rewards at the point of sale.
Lars Holmquist, who was recently appointed president of ESC Loyalty, TSYS' loyalty-services unit, said he expects "a couple" of TSYS' U.S. clients to roll out such a capability within the year.
Discover says it will begin offering the truest form of instant rewards to some of its cardholders in the United States in the near future.
Margo Georgiadis, its chief marketing officer, said these cardholders will be able to redeem earned cash-back re-wards at the point of sale when swiping their cards.
"We would be directly hooked to that retailer," she said, "so we would be able to know how much … [the cardholder] is entitled to and how much they have in their bank account." Ms. Georgiadis would not provide further details, including a timetable.
MasterCard International, which plans to go public next quarter, declined to comment on its plans for instant rewards.
Like the Visa test, a reward program that American Express Co. launched in May 2004 for small-business cardholders lets them get discounts at 20 U.S. merchants "without having to put in any codes or bring in any coupons," said Raymond Joabar, the senior vice president and general manager of Amex's small business unit.
But Amex's program does not count reward points. Rather, 20 merchants provide automatic discounts that, as in the Visa test, appear on the cardholder's statement.
A small-business owner would sign for a $50 purchase at FedEx, but the transaction would appear as $47.50 on the customer's statement, thanks to an automatic 5% discount.
Lawrence Sharnak, an executive vice president at Amex, said it is unlikely to offer such a program to consumers any time soon. For consumers, the company has not found instant rewards to be as important as the quality of the reward program itself, he said.
According to Mr. Holmquist, just providing customers with printouts of the number of points they earn at the point of sale requires merchants to invest a fair amount in their point of sale terminals. It would cost even more to let customers make redemption decisions at the point of sale - to ask them, for example, if they would like to use the 10% discount they have earned.
That is why Discover, American Express, and Visa say they are trying to take the burden off of merchants by enhancing the capability of their networks to allow for real-time rewards.
Indeed, it took Visa until December to start pilot testing such a capability because it had to make substantial investments in its network first, Mr. Attinger said.
Now, rolling out the technology needed to take advantage of Visa's instant-reward platform "is not an enormous POS implementation issue," he said. "Even dial-up merchants can take advantage of the program."
Some analysts disagree, saying merchants would have to invest in expensive upgrades in their terminals to obtain reward-point information at the point of sale.
"All the POS terminals would have to be enabled so that they can receive and display those messages," said Evren Bayri, the director of credit advisory services at Mercator Advisory Group Inc. of Waltham, Mass.
In addition, he said, "because you need to put another piece of information into the message [sent between the bank and the merchant], the bandwidth is greater, which would be costly to both the merchant and the payment-card network."
Discover and Amex say their closed-loop networks, which make them both issuer and acquirer for their transactions, are essential to developing real-time reward capabilities.
Visa says it has created what amounts to a closed-loop network that makes instant rewards possible.
