With energy and fuel prices rising globally,
several fuel retailers in the US are experimenting with new ways of
pulling in motorists, one of which is the establishment of their
own payments network. Charles Davis reports how consumer
behaviour at the pumps is being changed in dramatic ways.
A growing number of US petrol retailers are
teaming with an alternative payments company to build their own
private payment systems, in a shot across the bow of the card
associations.
What was once seen as a harmless novelty now is
anything but, as restless petrol stations dangle eye-catching
discounts for drivers who keep their cards in their wallets and use
a system developed by National Payment Card instead.
MTG Management gas stations in Texas, for
example, are reporting great success in offering drivers a tempting
choice: pay full price, currently hovering at more than $3 a
gallon, by card, or get a discount of $0.10 per gallon if they pay
with the company’s private payment system.
MTG reports the alternative payments system,
which allows drivers to initiate transactions with their driver’s
licenses and PINs, then debits their bank accounts through the
automated clearing house network (ACH), is changing consumer
behaviour at the pump in dramatic ways.
The benefits to petrol companies are twofold.
First and foremost, using the ACH network for payments is far less
expensive than credit or debit card transactions. And the National
Payment Card system keeps the customer relationship entirely
in-house, allowing the petrol retailer to benefit from
transactional data by offering exclusive discounts and tie-ins to
in-store merchandise.
Any card with a magnetic stripe, including
driver’s licenses and merchant loyalty cards, can activate the
system. The system offers merchants a permanent marketing link to
every user who pays at the pump, cementing a relationship that is
often as fleeting as drivers themselves.
Customers sign up online by giving their bank
account information and e-mail addresses, and then the merchant
sends customers an e-mail confirmation after every purchase,
opening a rich avenue for sending marketing messages and special
offers based on customers’ individual spending habits.
With petrol creeping up by more than a nickel a
week, National Payment, which has been promoting its ACH payment
system to gas stations for more than a year now, may find its
ability to tie the system to discounted petrol may have come at
precisely the right time.
National Payment, based in Coconut Creek,
Florida, reports the system will be available at about 350 stores
by the end of this quarter. By year-end, the company expects it to
be available at about 1,500 stores, with transaction volume of $10
million to $15 million per month. A processing deal between
National Payment and Fiserv signed in 2007 will further ease
merchants’ use of the system.
The real attractant, of course, is that
participating retailers bypass credit card companies and their
processing fees, which have been the source of great discontent
among petrol merchants.
As the cost of petrol has inched up, those fees
have become an even bigger sore spot. In 2007 – when gas was around
$0.35 less per gallon than it is today – the National Association
of Convenience Stores reported such stores’ credit card fees had
increased by 22 percent to reach $6.6 billion, making it the
industry’s second-largest expense, exceeding the industry’s overall
profits for the first time.

Tantalising ‘instant discounts’

While a $36 traditional credit card purchase could cost a gas
station around $0.86, National Payment charges a flat $0.15 fee for
each transaction it processes, and $0.17 for transactions initiated
by drivers licenses.

That saving allows retailers using the system
to offer those tantalising ‘instant discounts’ – creating the
equivalent of a petrol customer retention programme at no cost to
them.
In a market with razor-thin margins, savings of
a few cents per transaction to both merchant and consumer is no
small incentive.
State regulators are not huge fans of the
system – the Texas Public Safety Department issued a statement
urging consumers to use caution when providing any retailer with
their driver’s license number – but National Payment has
implemented impressive security measures that outpace most other
forms of payment.
Customers’ financial information is not stored
anywhere on the actual license, and withdrawals are not permitted
after more than three failed PIN attempts. The system also sets a
maximum weekly limit of $300 in withdrawals, and in the case of
fraud, customers would only be responsible for the first $50 of
that.
Flash Foods, which operates 180 gas and
convenience stores in Georgia and Florida, has been pleased with
the National Payment ACH retailer-loyalty programme since launching
it last summer. At Flash Foods stores, 52 percent of sales are
initiated with credit cards, which cost the company an average of
$0.57 per gasoline purchase.
In December, El Dorado, Arkansas-based Murphy
Oil USA, which operates nearly 1,000 gas stations at Wal-Mart
parking areas in 21 states, began implementing National Payment’s
drivers’ license ACH payment system.
National Payment is competing with
Tempo Payments
, which switched from an ACH system to a
decoupled debit approach last year after it found persuading
merchants to become card issuers was difficult work.
Tempo cards will be accepted at 800,000
merchant locations within the year, according to company releases.
The PIN-based Tempo Payment Network, formerly called
Debitman
, also charges merchants $0.15 per transaction.
Some 200,000 retail locations accept Tempo
cards, and 600,000 more will accept the cards once Chase Paymentech
Solutions, a leading merchant acquirer, completes its integration
in the next few months.

HSBC
, which also invested $8.7 million in Tempo last year,
plans to have merchants participating within the next few
months.
One major Tempo client, Wesco, also offers
Tempo cardholders discounts on purchases of soda, candy and other
merchandise in addition to a $0.02 discount on gas. The company
reports higher spending as a result, as more Tempo customers are
spending money in the stores.
With some petrol analysts predicting prices of
$4 a gallon this summer, alternatives such as ACH look better than
ever to merchants and consumers.

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