Friday, September 01, 2006

The Consumer & Retail Economics Of EFT

Image Credit: WESCO "Your Neighborhood Store"

The Consumer & Retail Economics Of EFT

At WESCO, a regional convenience store chain in Michigan, Electronic Funds Transfer (EFT) service charges greatly effect consumer fuel purchases at the pump.

The 51 store operation processes approximately 2.5 million transactions per month, with more than 70 percent charged to Visa and Mastercard EFT (debit and credit) cards, which both carry costly transaction fees.

In an effort to keep and gain customers as well as make the fuel operation a little more profitable, WESCO puts smiles at the pump by combining its own branded debit card with a consumer loyalty program that automatically discounts gas prices at the time of the fuel purchase.

Excerpts from the American Banker via Cardinal VC -

Debitman Issuer Offers Gas Discount Incentive
By American Banker - 08/22/2006

WASHINGTON -- Debitman Card Inc. said Monday that it has signed a new merchant issuer for its payment cards, the fuel and convenience store operator Wesco Inc.

Wesco began offering the Debitman cards under its own brand this month at its 51 Michigan locations. The Muskegon, Mich., company is promoting the PIN debit cards with a program that knocks 2 cents a gallon from the price of gas.

R. Scott Hatfield, Debitman's founder and vice president of business development, said in an interview Monday that Wesco is the first company to implement a gasoline rewards program, though Debitman has discussed the idea with other companies and another merchant is testing a similar gasoline rewards program.

"The bottom-line is retailers want to incent their consumers to make purchases with cards that are more retailer-friendly," Mr. Hatfield said.

Debitman, of San Mateo, Calif., operates the Retailer's Network, which allows merchants to cut their card processing costs by routing transactions across the automated clearing house system instead of the networks operated by credit card companies.

Wesco plans to expand the rewards program in September, so in-store purchases will generate points, which can be redeemed for additional discounts on gas.

Merchants accepting Debitman cards pay a flat fee of 15 cents per transaction, which is generally lower than the fees for using bank-issued debit and credit cards. Debitman card-issuing merchants also get a 6- to 9-cent rebate per transaction when their cards are used at their stores or at other merchants that accept Debitman.

Wesco tested the cards in June and July at two of its stores. Mr. Hatfield said it has "programmed the pump to recognize" his company's six-digit bank identification number, "and every time you activate the pump with a Debitman card, you automatically get a rollback on the price per gallon."

Customers enter a PIN to authorize an ACH debit to their bank account, "and they're not penalized for using their PIN debit card," he said.

He noted that some banks charge a fee for using their debit cards for PIN debit transactions to discourage that use of the cards; banks earn higher interchange fees from signature debit payments.

Debitman has both card issuers and card acceptors in its network. Wal-Mart Stores Inc. agreed in November to accept Debitman cards, but the retailing giant does not issue them. In January two regional supermarket chains -- Binghamton Giant Markets Inc. in New York and HAC Inc., which operates 67 supermarkets in Oklahoma and Kansas -- agreed to issue Debitman cards. Giant Markets now issues the Giant Extra Plus Debitman cards to shoppers.
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Efficiencies in retailing by combining EFT and loyalty card programs make sense when the benefit becomes a two-way street.

Now, if banks can resist charging fees for "proprietary" debit transactions, this new chance at a partnership between the banking community and retail would result in a boon to consumerism.

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