When Joe Randazza first began filing National Payment Card Association patents seven years ago for decoupled debit products and processes, he admits he "didn't have the vision to foresee a future with smartphones."
Randazza, the company's founder and CEO, was nevertheless able to amend those filings to reflect changes in the market. One such amendment, made in December of last year, turned a patent for plastic cards into one that also covers decoupled debit in mobile payments, the company announced June 28.
"This mostly proves that decoupled debit is alive and well in the mobile wallet," Randazza says.
Decoupled debit cards allow a consumer to draw funds from several accounts, including a checking account, at a lower cost than what merchants pay for traditional debit cards. Many predicted the product's demise after federal regulators capped debit interchange fees at 21 cents through the Durbin amendment of the Dodd-Frank Act last October.
The change caused Tempo Payments Inc., a pioneer in the field of decoupled debit cards, to shut down operations.
"I have been to a couple of funerals for decoupled debit already, and the flowers were very nice," Randazza says. "But NPCA is very much alive and we have survived all of the changes in regulation and we have hundreds of thousands of users."
Randazza admits that the 800,000 transactions that National Payment processed last month is small in the payments world, but he is confident the mobile wallet advancement will increase the number of merchants using the company's service.
Coconut Creek, Fla.-based National Payment has offered closed-loop decoupled debit cards for convenience stores and gas stations for the past eight years. It more recently began offering open-loop cards that authorize transactions over the Discover Pulse network.
Now, the company is prepared to move ahead with mobile wallet providers, mobile payment software developers and point of sale terminal vendors to add the decoupled debit option.
Even as technology advances, the sales pitch for decoupled debit remains the same: the cards are less expensive to merchants because they handle payments over the Automated Clearing House network.
"If a merchant uses a branded decoupled debit mobile rewards offer … he will choose the lowest cost and interchange possible," he adds. "We are at 15 cents per transaction, compared to Google and PayPal generally at 60 cents and regular credit cards at 80 cents [for rewards transactions]."
The company's patent encompasses routing technology methods for sending, authorizing and completing decoupled debit transactions initiated by payment "tokens" provided by third parties, such those that make mobile devices.
The National Payment system calls for the consumer to enter a PIN to initiate the sending of ACH debits to a checking account linked with the mobile device, Randazza says.
National Payment may have a great process in place for merchants, but consumers will ultimately vote on whether they are comfortable with a decoupled debit card, says merchant acquirer consultant and industry researcher Paul Martaus, of Mountain Home, Ark.-based Martaus & Associates.
"I hate to dampen anyone's parade because on a conceptual level, this is outstanding," Martaus says. "But we always have to get back to whether there is enough critical mass in any innovation for it to make sense."
Ultimately, consumers have to be convinced that a branded loyalty card program is stable enough over a long haul for them to provide a link to their checking account, Martaus says.
"Retailers have had access to ACH for decades now and many programs have started and stopped when consumers just wouldn't do it," he adds.