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Why Point-of-Sale Activation Technology Has Been Heralded as a Kingmaker

If connectivity in today’s digital world represents “everything,” then surely the opposite must be true of disconnectivity.

As we immerse ourselves in the 21st century and the Internet of Things—the symbiosis between design and device—and live our lives according to the new laws of online and omni-channel retailing that are but a few steps away from artificial intelligence running our lives for us, it has become harder to remember when we did not function with such real-time immediacy.

Indeed, we may have come so far into this brave new world that we can no longer function without smart technology. If we were suddenly to switch them off, would we suddenly cease to function as a society, or would life simply revert to factory settings?

A philosophical debate rages around the enablement of modern life as we know it and the theory that it has been subverted (or disrupted) by organized cyber gangs making use of the so-called Dark Web to turn connectivity into criminal gain and darker purpose. They are suspected of cyber warfare, the disruption of democracy, and denial of service attacks against other countries’ vital infrastructure.

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How would switching off the technology affect our relationship with the latest must-have generation of mobile technology? Denial of service certainly has far-reaching implications, but is everything as it seems? In a world where opposites attract, denial of service could be a force for good and put to commercial use, particularly in retail where organized retail crime gangs and opportunist thieves have had a free hand at disrupting legitimate business.

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Better still, not switching technology on in the first place could be a game-changing disruptive technology in the world of loss prevention, which arguably has not had any major developments since electronic article surveillance (EAS) debuted in the 1990s. Enter point-of-sale activation (PoSA), winner of the 2017 (R)Tech Asset Protection: Innovation Award in the United States. It has been heralded as a kingmaker and the latest generation of disruptive technology.

EAS relies upon a retrofit or source-tagged RF or AM device-it is a passive technology that has to be fitted to high-value merchandise. Theft of items may trigger an alarm at the EAS gate, which can lead to retrieval of the goods. But in many cases, in today’s noise-polluted world where alarms are seldom responded to, more and more items are merely written off as shrink.

Point-of-sale activation, on the other hand, is a proactive technology designed to offer complete supply-chain and in-store protection against shrink. Its focus is currently on intelligent devices: high-value consumer electronic devices that are digitally locked at point of production and activated by a code provided on the customer receipt at the point of sale (POS). In short, the device is “dumb” or simply does not work until it is activated, rendering it useless until purchased. It allows for open display and customer interaction, but any unwanted attention by shoplifters is rewarded with blank screens and zero functionality once removed from the store.

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According to Professor Adrian Beck from the University of Leicester, “This is a benefit-denial technology that is digitally designed to disrupt crime by reducing the value of a smartphone from hundreds of euros to around a five-euro recycling value because it will simply not work until activated.”

The technology, created by US company Digital Safety (DiSa), allows products to be serialized (uniquely identified) through the use of software and packaging changes, including the use of a GS1 data barcode. Upon scanning at the POS, the technology uniquely requires a single scan as opposed to the current industry standard of two scans. This also enhances the customer experience in speeding up the transaction in the first instance.

Each barcode includes three data elements captured by the POS as part of that single scan. These data elements are sent to DiSa’s digital center, the central repository of the retailer’s transactional records, which in turn can support decisions for returns, warranty, and product care plans (PCP). Capturing the unique code-its unique digital fingerprint-at the POS also highlights the fact that any fraudulent return would be identified because it includes details of the store or online channel where it was purchased—and even if it has ever been sold, as opposed to stolen, in the first place. This eradicates those instances where shoplifters pick up the item and brazenly take it to the cashier for a refund without the receipt.

“Return or refund fraud is the fastest-growing fraud, and this is a disruptive technology that puts the power back into the hands of the retailer to validate or deny the transaction; they will have all the facts available on that product at the point of sale,” said Adam Hartway, CEO of global retail at DiSa Digital Safety USA. “This prevents people from simply grabbing something in store and taking it to the counter.”

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This in effect means that point-of-sale activation has the ability to be disruptive in a completely different and preventative way, which could effectively impact the illicit markets in search of stolen goods to fence or sell on. Once the technology becomes mainstream, thieves will have worked out that the return on investment for stealing the item is simply not worth the risk.

“This is a game-changer as far as the illicit market is concerned,” Hartway continued. “If people do steal the items and try and sell them on unauthorized websites, for example, the fact that it does not work because they do not have an authorization code will mean that it is useless. It will kill the market.”

The Journey to Point-of-Sale Activation

Getting to the point where PoSA is now-used by the largest US retailer, Walmart, and under review by a number of retailers in Europe-has been a long and circuitous journey. Embedding benefit-denial technology in process-driven devices at the point of manufacture (source tagging) has been DiSa’s goal since the early Aughts, but getting the first retailers to buy into the holistic concept was a slower burn.

According to Hartway, it needed partners with vision to understand its true potential. “We have been very lucky with PoSA, but there have been learnings at every stage of the journey.”

In 2009, Walmart, the world’s largest retailer, began showing an interest and began working with PoSA to help make the technology, which was still in its infancy, more scalable and affordable. It wasn’t until 2016 that the retail giant put it into a full-concept operation in Store Number One in Arkansas, where senior management could watch from Walmart’s head office just six miles down the road. There, the first test purchases were carried out in September 2016, more than a decade after the original concept was developed.

Walmart, which previously had a policy of putting high-value items in secure cabinets, worked with some of the larger tablet manufacturers to test the technology. After a series of tentative steps, the first signs of progress were made. It was also externally tested through the Loss Prevention Research Council (LPRC), which published positive results after single-store proof of concept and expanded store trials.

Dr. Read Hayes with the University of Florida and LPRC said, “Studies show an offender steals to use or sell what they took. Taking away their motive is the key. LPRC scientists have worked on benefit-denial technology since the early 2000s. Over the years, solution providers have unsuccessfully tried to implement deployable, digital benefit denial (BD). Our research team has been working with DiSa USA and several major retail partners to implement effective, scalable, new BD technology that renders high-value electronics unusable until unlocked after a purchase. Small and large-scale LPRC testing show good effectiveness in reducing losses and boosting sales.”

Chris Roberts, DiSa retail POS executive, said, “Results were encouraging because of the ability to open-sell product that was previously merchandised in a locked cabinet.”

But with proof of concept now complete and a roll-out across a number of “larger-box” retailers in the United States, the journey is far from over.

Hartway said, “We are now working with smaller-box retailers and talking to them in terms of how they want to shape it for their businesses.”

In terms of products point-of-sale activation can work with, retailers are only limited by their imaginations. The growth of smart technology through the Internet of Things means that most products with an on-off button have processing and communication capability, which is why the world of retail is a proverbial oyster to DiSa at the present time.

Clear Messages

The secret to DiSa’s success will be in its message. The more people—honest and dishonest alike—who understand how it works, the better. Knowledge is power, which the devices cannot have until they are legitimately purchased. Thus, the ultimate result of the denial of service technology is slowing the rate of shrink.

Professor Beck added, “This is a very strong technology, but in the first instance it relies upon the retailer to take a strong leap of faith. Potentially, they will lose a lot of product in the first instance until the message gets out there. But for those who hold their nerve and recognize that this is only a transitional phase, benefit-denial technology is an absolutely fascinating game changer.”

Messaging is therefore everything, particularly when you are working with less-than-honest customers. To that end, DiSa is looking at its packaging and signage, including the use of strong warning colors-a waspish yellow and black, for example, to make sure the sting in the tail is obvious from the get go.

Unlike CCTV, which legally requires signage to alert store visitors of its presence, there are no data protection issues with PoSA because customers are not giving away any personal data that can be stored beyond the transaction itself. The signage merely advertises the fact that their shiny new product can only work when it is legitimately processed through the POS, which relays both a positive and a negative message, depending upon the motivation of the “customer.”

Where EAS has wider application-from clothing to computing and integration into RFID technology in retail—its early application shows that point-of-sale activation has deeper capabilities. EAS may alert security that an item is being stolen, but PoSA encourages customer interaction and takes away the need to raise an alarm. Going one step further, the technology can detect fraudulent returns and will have a profoundly disruptive impact on the market the thieves seek to benefit from.

To use a medical analogy, taking the tablets in the short term may make sense but not in the mid- to long-term when they can do more harm than good. In the digital world, PoSA proves taking smartphones, tablets, and other intelligent products has no future and is nothing more than a prescription for failed enterprise.

This article was originally published in LP Magazine Europe in 2017. This excerpt was updated March 8, 2018.

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