Summary:

Foursquare is going national with a partnership with American Express that will enable its members to redeem location-based deals by swiping their credit card. But the company faces challenges in proving that it can compete in the local commerce space.

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In its larger bid to become a universal loyalty program, Foursquare is going national with an American Express partnership that will enable its 10 million members to redeem location-based deals by swiping their AmEx card. The partnership builds off a similar trial from South By Southwest and shows how the location-based network is working to strengthen the relationship between merchants and consumers.

Foursquare users can link their account with their AmEx credit card and when they check into a participating location, they will be able to unlock a special deal. They can then load the deal on to their credit card and when they pay for it, the discount gets credited to their account in a couple days. This could be a potent combination because it allows merchants to know who is redeeming their rewards and they can see how successful the promotion is.

The AmEx deal augments Foursquare’s existing deals, which are triggered when people check-in to locations. But it also points out how much work Foursquare needs to do to achieve its goals in the local commerce space. Though it has been an early leader in the location-based check-in space, it’s unclear how many of its 10 million users are active and beyond that, how many are actually redeeming merchant offers.

That’s the big question in this space: Who is going to be the prime resource for merchants in marketing their wares to consumers? Everyone from Facebook, Google, Groupon, Living Social and others are trying to become the best friend of merchants, helping them market to consumers with rewards and deals. Google has clearly made this a goal with its Google Wallet initiative, which it is tying together with its Google Offers program. While that will depend on NFC adoption both by merchants and consumers, the AmEx deal allows Foursquare users to redeem offers with the card they already have. It’s a good bridging step that makes sense because for most people, their cards are still the most convenient way to pay.

But Foursquare said it’s not making money off the deals, which just adds more questions about how its overall revenue model is shaping up. The company said what it’s really trying to do is establish that rewards can work and that Foursquare can be a viable loyalty program for merchants and retailers in place of older card or coupon programs. That will be the hurdle.

It’s one thing to run a trial at SXSW but it’s another creating a program that works nationwide, that hits people outside of San Francisco, New York and other big cities. And when you’re faced with giants like Google and Facebook or companies like Groupon and Living Social, who are now using their huge sales staffs to push instant deals, it becomes an issue of how to consistently source a great number of quality deals. And for merchants, it’s important to see how big an audience a service can bring. That’s the challenge for Foursquare: can it put it all together, enough deals and traffic that appeals to both consumers and merchants.

The American Express partnership is a help but Foursquare will need to do a lot more to ensure that it can deliver on the loyalty and rewards promise of its service. And it will have to do even more to make sure that it can turn all of this into a profitable business.

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