Hoping to cut its payment card acceptance costs, Royal Dutch Shell PLC in January last year launched its own debit card after learning a $20 purchase settled over the automated clearinghouse system would cost the petroleum company about 60% less to accept than traditional credit cards. Thus far, the company says, the product has exceeded expectations.
ACH-based debit cards are not new, and few, if any, have had success. Shell, however, may have launched its product at a time when market conditions were just right.
To combat the effects of the recession, merchants in general are seeking ways to reduce costs, and ACH debit is one of the alternatives (see sidebar below). Moreover, consumers, having experienced first hand the adverse effects rising debt can have during a down economy, increasingly are turning to debit cards to control their spending.
Shell appears to have capitalized on both trends by offering a debit product that not only can reduce its costs but provide consumers with a debt-free payment alternative that offers discounts and other benefits that save them money, too.
When Shell launched its Shell Saver Card, the petroleum retailer initially believed it would sign up 25,000 customers by the end of 2009. Instead, it secured 75,000 card accounts, Chris Suess, consumer card manager for North America at Shell Oil Products U.S., tells PaymentsSource. He estimates the cards have saved the retailer a significant amount but was unable to provide a specific figure.
For Shell, the proprietary Saver Card is a long-term initiative to help drive customer demand and boost revenue. “It’s an attractive option to those looking to avoid credit due to the national ‘shift to thrift’ in consumer-purchasing behavior as well as to those who don’t qualify for a Shell-branded credit card,” a Shell spokesperson explains.
Consumers pay no application or annual fees for a Saver Card. When applying, they provide their bank-routing and checking account numbers from a personal check, and Shell uses this information to secure payment when customers use the card.
Inside the store or at the pump, customers present their Shell Saver Card and enter a personal identification number. TeleCheck, an account-verification provider operated by Atlanta-based First Data Corp, verifies the information. If it approves the transaction, the purchase amount is withdrawn from the cardholder’s checking account electronically via the ACH system.
First Data also is Shell’s processor for the Saver Card and for other Shell card programs. Shell also offers prepaid gift cards, personal and business credit cards, and a Shell-branded MasterCard.
Offering ACH-based cards can lead to a better overall connection with consumers, says Beth Robertson, director of payments research at Pleasanton, Calif.-based research and strategic consulting company Javelin Strategy & Research. Offering a savings promotion also can often help build a loyal connection, she says.
When the card launched, Shell offered a promotional savings of 5 cents off per gallon on gasoline or diesel purchases through June 1, 2009, and is considering repeating the promotion, the company’s spokesperson says. Cardholders now save 2 cents per gallon and also may use their card to purchase anything, except lottery tickets, from the convenience store. At press time, Shell did not have plans to extend discounts to other products.
The Saver Card also widens the audience of holders of Shell-branded cards, the spokesperson says. To help ensure customers stay loyal and to engage new consumers, Shell did in-store promotions with signs, applications and brochures, and it used signage at the pump to promote the savings Shell Saver cardholders receive when using their cards, says Karen Kaukol, First Data vice president of product management. Shell also designed ads for national newspapers, and the petroleum vendor designed a Saver Card Web site and included information about the card on its Facebook page. Additionally, NASCAR driver Kevin Harvick helped Shell promote the product.
For Shell merchants and fuel suppliers, ACH-based cards could mean a fast return on investment because they would not need to purchase new equipment, and no major software upgrades would be needed because the transactions use existing settlement processes, according a report Suess and First Data put together for a NACHA teleseminar in June. NACHA oversees the nation’s ACH network.
Moreover, virtually all Shell sites were able to accept the card at product launch, and the card has helped Shell drive more customers to the company’s Web site where additional products are sold, the spokesperson says.
Shell stores also do not pay merchant-service fees to process the Saver Card transactions. However, they do pay TeleCheck a fee. TeleCheck’s fees vary based on the level of risk protection, Kaukol says. First Data would not disclose its fee schedule.
Shell also saves money because ACH-debit purchases cost merchants less than regular credit card purchases. Though Shell would not say how much the difference is, Michael Grossman, CEO of Tempo Payments Inc., a San Mateo, Calif.-based processor, estimates merchants pay about 0.5% to 0.75% of the sale for an ACH-based debit card transaction, but the actual rates vary by program. By comparison, merchants typically pay 2% to 3% of the sale for a credit card transaction, and those rates also vary significantly depending on the size and type of merchant, Grossman adds.
Shell also benefits because First Data handles the back-end processing. TeleCheck creates an ACH file, and the transaction is settled through the company’s originating depository financial institution partners, Kaukol explains. First Data also handles returns on Shell’s behalf, she adds.
In a verification-with-collections environment, merchants only experience returns if TeleCheck exhausts all attempts to represent the transaction, Kaukol says. At that point, First Data debits the merchant’s account and begins contingency-based collections on the merchant’s behalf. Because transactions are PIN-enabled ACH transactions, not PIN-debit transactions, no electronic funds transfer networks are involved with the Saver Card.
Frequency of customer visits also rises when customers use Shell Saver cards. In fact, consumers with all Shell-branded payment cards visit Shell two to three times more often and purchase up to twice as many gallons than do MasterCard or Visa cardholders, internal Shell research has found.
Shell appears pleased with the results thus far with its Saver Card. Time will tell whether the petroleum company can maintain product momentum. If it can, expect more petroleum and other merchants to take notice.
More ACH-Based Debit Cards Enter The Market
Royal Dutch Shell PLC is not alone in offering customers a debit card that settles transactions using the automated clearinghouse system. Other merchants in the petroleum and grocery space have similar offerings. Wilson Farms Inc. and QuikTrip Corp., for example, have added reward points and cash-back incentives to encourage customer participation.
Wilson Farms is partnering with Maverick Network Solutions Inc. to offer the Red Hot Rewards card. The free payment/loyalty product is a “private-label debit card specifically designed for Wilson Farms with a PIN-based element,” says Phil Valvardi, CEO of the Wilmington, Del.-based alternative-payment services company.
The Williamsville, N.Y.-based neighborhood food and gasoline retailer also is partnering with Outsite Networks Inc., a Norfolk, Va.-based loyalty service provider. Outsite Networks provides Wilson Farms’ cardholders with additional cash-back incentives, targeted offers and rewards. These rewards can include buy-one-get-one-free offers on beverages and $1-off coupons on various groceries. Cardholders also can earn and cash in points for such products as free 20-ounce beverages and coupons good toward their next purchase.
Tulsa, Okla.-based QuikTrip, which owns convenience stores and travel centers, offers an enhanced product that secures authorizations through MasterCard Worldwide but settles them over the ACH system. Because this card links to the MasterCard switch, cardholders can use it worldwide–for signature, PIN or ATM transactions. The card connects to MasterCard’s Cirrus network for ATM access and to its Maestro network for PIN-debit purchases.
“We have introduced an open-loop card, which is still ACH-based but can also be used anywhere MasterCard” is accepted, says Michael Grossman, CEO of Tempo Payments Inc., the San Mateo, Calif.-based processor supporting the debit card.
The QuikTrip Rewards Debit MasterCard saves customers on gas and provides cash-back rewards. For example, for the first 90 days, cardholders receive a 5-cent discount per gallon of gas that later shifts to a 2-cent discount, Grossman says.
QuikTrip is working to enhance the program and is not accepting new applications. The company expects to launch a new card later this year, according to QuikTrip’s Web site. A QuikTrip representative was unavailable to comment.
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