ith so many major retailers and super stores cropping up all over the country, merchants who actually know their customers by name may be few and far between. But that doesn't mean merchants can't still know what their customers want and reward them for their loyalty.

Loyalty and incentive programs offer merchants numerous opportunities for bringing customers back into stores again and again, and by taking it one step further-integrating these types of programs at the point of sale-merchants are able to reward customers for their loyalty and customize these rewards for each customer. Catuity, Inc. has developed software that allows this to be done at the precise moment the sale is transacted.

"The questions are 'How do I just distribute incentives to the people that really need it?' and 'How do I get you to keep coming back to my store?'" said Michael Howe, President and CEO of Catuity.

"What we're providing is information about individual customers at the check-out so that stores can be smarter about their customers when transacting with them. It's probably the best time to have information about customers."

Catuity, Inc. (NASDAQ: CTTY) is a software company that develops real-time multi-program marketing platforms for loyalty and incentive programs delivered at the point of sale (POS) during the transaction process.

Catuity's system works with magnetic stripe cards, smart cards, radio frequency identification (RFID) devices or contactless tokens; and it can be used by both brick and mortar and e-commerce merchants.

Catuity's software records customers' purchase data and compares it to specific loyalty programs in which the customer is participating. If a "trigger" amount is reached, then it delivers an earned reward or an incentive to that customer right at the point of sale. This is an essential part of rewarding consumers and providing them with incentives to keep them returning to the store.

The software allows a POS terminal, for instance, to recognize an "entry device"-typically a card-which serves as an individual customer ID. An entry device can be a credit or loyalty card-a magnetic stripe or smart card, a contactless or RFID device or even a bar code. It all depends how merchants want to identify their customers.

"The entry device matches up with an acceptance device-a point of sale terminal, cash register, kiosk, the Web site-wherever the merchant is doing the transaction," Howe said. "The entry device and the acceptance device talk to each other."

When Catuity's software is installed in the terminal, the software instantly recognizes a card that's registered with the system. But Catuity's software tracks customer purchase data by number only-not by name-to avoid any of the privacy issues concerning data collection.

And Catuity doesn't have ownership of the data-the merchants or the processors own the data. "They follow the privacy rules as they relate to credit-all we're doing is automating the process," Howe said.

"Part of the reason for reward programs is that customers want to be rewarded. If they want to be rewarded, then they probably want you to keep an eye on what they do and buy so you can reward them with things that make sense."

Catuity sells its software to bankcard issuers and payment processors that then provide the solution to their merchant customers. In some cases, Catuity will sell directly to large-scale merchants who are looking to run their own loyalty systems. Catuity is not an application service provider (ASP), so it does not run the systems for customers.

"Instead, we make the software for others to run," Howe said.

The company also sells its products and services through the ISO sales channel. Catuity licenses its host software through a global channel partner program and some of these channel partners might include an ISO.

Non-affiliated ISOs will be able to market the Catuity solution via this network. Merchant Level Salespeople can benefit by marketing Catuity's gift and loyalty card programs as a value-added solution to their terminal sales.

Catuity was founded in 1995 in Australia, and went public there two years later (ASX: CAT). In 2000, Catuity moved its headquarters to the United States and went public shortly after. At the end of 2003, Catuity employed 37 people across three offices: its headquarters in Detroit, a product and customer support office in Arlington, Va., and a development office in Sydney, Australia.

The company's reported sales volume in 2002 was $2,972,000. In 2003, it was named one of the "Fastest Growing Technology Companies in North America" in Deloitte Technology's Fast 500.

Catuity's system originated in Sydney, Australia. It was part of a trial contactless system involving Westbus passengers and the merchants surrounding the bus and train stations. Merchants sold cards to travelers that allowed them access to transportation, but they also included specials and discounts on the cards to incite customers back to their stores.

"The program was never really marketed in Australia-it was just run to see how it would work operationally," Howe said. "For it to really become a success it needed to become a U.S. corporation and it needed to be integrated with payment."

To do this, Catuity has created partnerships with many major POS terminal manufacturers including VeriFone, Axalto (formerly SchlumbergerSema), Banksys and Hypercom Corp., with more being added as demand dictates.

And the application is not limited for use with only point-of-sale terminals. It can be integrated with most point-of-sale systems, including Web environments, kiosks and multi-lane cash registers-even advanced mobile phone payment solutions. And if a merchant has multiple POS systems, the application can be integrated across all of them.

"This is so a merchant would not have to have different loyalty systems for their different channels," Howe said.

Some of Catuity's customers include Electronic Merchant Services; KESM Transaction Services; Maritz Loyalty Marketing; Visa USA; and Target Corp.Catuity's system is scalable-from small "mom and pop" merchants to major national retailers (it's currently being used in all 1,200 Target stores).

It can be an affordable solution for all differently sized merchants because Catuity's pricing model is use-based, meaning the more the system is used, the more it costs; if it's used in small environments, then it doesn't cost as much.

The Catuity System is fully developed and has undergone extensive testing and trials with multiple customers. It is being rolled out by customers with more than 13 million consumer cards issued, more than 42,000 point of sale terminals being enabled and 4 host systems installed.

One unique capability of Catuity's product is its ability to track by SKU (stock keeping unit). This means the Catuity system is able to capture and store information concerning individual levels of merchandise.

"For instance, our system can track a customer's shopping basket," Howe said. "We can track and store whether you bought a 40-ounce bottle of shampoo or a 20-ounce bottle. And we're not just tracking total amount spent, we're tracking actual items.

"This is important to the product good manufacturers who provide most of the incentives that the merchants use." Howe said the Catuity system can track about 40,000 different SKU's for a particular merchant program.

The system also offers valuable reporting capabilities. The software comes with 25 standard reports, and additional reports can be created, too. Catuity's consulting services division will train customers on creating and customizing reports for their merchants.

In a loyalty or incentive program, reporting is key, Howe said. Viewing reports quickly after the promotion has ended to report back to the product good manufacturer, is especially important.

"We're creating a software program that will allow the merchant to track all of this stuff electronically and even change the program or launch new programs within 24 - 48 hours."

In terms of the type of incentive programs offered, the sky's the limit, Howe said. "Whatever rewards or programs that are out there today, we've pretty much built them into the software.

"I'm really happy with the space that we're in," he said. "The time is now and the technology is there to be able to integrate these systems directly to the merchant's cash register or point of sale system."