Waking the giant, retailers and merchant issued ACH decoupled debit cards.

Theodore Bikel, who made his film debut in The African Queen, once said “All too often arrogance accompanies strength”. I suppose, he may have been speaking of Humphrey Bogart, but today, couldn’t we apply this to the constant drumbeat announcing the death of ACH Decoupled Debit from the nation’s Financial Institutions and analysts’?

Capital One’s shuttering of its decoupled debit card has raised the eyebrows of industry experts with ISO & Agent declaring; “Decoupled debit cards appear to be fading away”. Meanwhile, Javelin Strategy and Research declares; “Merchant-centric decoupled debit suffers disconnect between the merchants’ interests and their costumers”.

The Mercator Group may have it closer to true when they say “Decoupled debit is all about loyalty.”, and there lies the real disconnect. It’s not between the merchant and consumers interest, it’s between the merchant and financial institutes interest. When it comes to the consumer, we all agree that providing the best value is paramount, but who is best able to provide the consumer with the best value, the retailer at the point of purchase, or the financial institute through a method of payment? In the end, it all boils down to costs, rewards and the giant’s desire to wake. One has to wonder, if the high cost of interchange and financial institutes’ monopolistic practices have created enough discomfort to break the slumber? (http://www.linkedin.com/in/peterguidi)

Competing for Method of Payment: Recapitalizing Interchange into Rewards Programming.

When a retailer competes for their consumer’s method of payment (MOP), rewards must be used to motivate the desired behavior. The question: are incentives for payment the same as rewards for purchase and are the results similar? Another question might be; if a retailer is able to recapitalize interchange fees into rewards programming does that represent ROI?

A typical 30 location convenience petroleum retailer spends in the area of $1 million dollars per year on interchange fees. If that retailer captures 10% of that business by re-purposing interchange fees as rewards what is the result of this investment? First the retailer has reduced their interchange expense, but where is the ROI? ROI comes in the same way retailers experience ROI from a loyalty program, frequency and lift. Using incentives, such as gas discounting, to motivate alternative payment will initiate a “loyalty” response.  In other words, these consumers will frequent the store more often and they will purchase more gas with each stop. 

Competing for the consumers MOP requires that the retailer provide an “incentive” for “payment method”, rather than a “reward” for “purchasing “decisions. The consumer’s responses to the programs are similar because both induce loyalty. When competing for the consumers’ MOP the budget to fund the incentive comes from the recapitalization of the Interchange Fees, while the rewards for traditional loyalty programs comes from the retailers gross margin. (http://www.linkedin.com/in/peterguidi)

“Taxing” the “Hidden Tax”; will Politicians take aim at interchange as a new source of government revenue?

Erwin N. Griswold  said “We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two.”  At least,” as one man said, “there’s one advantage about death; it doesn’t get worse every time Congress meets.”  Democratic Representatives Peter Welch of Vermont and Zoe Lofgren of California have sponsored legislation aimed at clamping down on interchange fees.  Enter into this debate a new proposal that suggests the creation of a new “Natural Disaster Trust Fund” funded with what?  You guessed it; a tax on interchange fees.  

If there is anything Congress likes more than the donations of important special interest groups, it’s a new source of revenue. This is the perfect storm for an idea like this; a regulation happy Congress, a huge source of money, conflicting information from two major industries and a compelling need for another major government program.  Improbable you say?  Hardly.