When Cumberland Farms said this month that it had processed $1 billion worth of gas via its decoupled debit card over the course of nearly three years, it was the latest example of the power of the decoupled debit card. And yet, other than Target's RED card, decoupled debit has barely moved beyond the convenience and petroleum segment.
The benefit of decoupled debit, which draws funds directly from bank accounts, is an avoidance of interchange fees typically associated with card payments. To encourage consumers to use decoupled products, retailers typically share the benefits in the form of a discount. Cumberland, for example, provides a 10-cent discount per gallon of gas purchased with its decoupled debit mobile app, plus a free beverage for every 30 gallons purchased; it has given away 1.5 million free drinks to date.
But despite these clear indications of success, decoupled debit has seen little adoption outside the petroleum industry.
"As for why other retailers haven't gotten on board, I really don't know," said Chris Suess, Shell's general manager for payments for North America. Shell has offered a decoupled debit card since 2008, with an incentive of a two-cent discount per gallon of gas purchased.
Beyond the interchange relief and the ability to fund direct customer discounts, Suess pointed to the absence of debit holds on decoupled debit as a key advantage. He also predicted that decoupled debit products could grow as complementary products to mobile wallets.
One of the earliest reasons for offering decoupled debit in the petro/convenience space was the relatively small value of the typical purchase. Asked whether Shell has seen decoupled debit increasing that average basket size, Suess said it appeared to, but the data is not clear.
"We've seen very consistent spending patterns on our decoupled debit" card, Suess said, but given "the dramatic drop in fuel prices" during that same timeframe, he would have expected to have seen that spending drop. The implication is that convenience and other non-gas purchases have increased.
One longtime payments analyst argues that decoupled debit hasn't grown much beyond its base because retailers are suspicious of its apparent simplicity—and the fact that its incentives are based on hard dollars and not soft dollars.
"It's against retailers' nature to do something simple. It's simple for the customer and business people have a hard time with simple," said Thad Peterson, senior analyst with Boston-based Aite Group. "It's not about decoupled debit. It's about the utilization of the store. It's about that five percent off of every transaction."
A problem that many have when trying to understand decoupled debit, Peterson said, is to focus on the lack of interchange costs. He points to Target and its RED Card and five-percent discount off of every transaction. That program has been widely praised for increasing revenue, profit, attracting new customers and reducing transaction cost, meaning that the discount has paid for itself many times over.
Therefore, Peterson asks: "If interchange weren't an issue here, would Target choose to not do this program? Of course not. The interchange issue is kind of moot. Target would do it at even a much higher cost of transaction."
That brings us back to the question of why the product isn't more widespread among retail verticals.
"I'm perplexed as well," Peterson said, adding that existing retail programs using soft dollars—where discounts are paid for by manufacturers and often have complicated restrictions—are well entrenched. "Once you have these programs in place, it's really really hard to unwind them. There is inertia that is created by having these legacy programs."
Another longtime payments observer is Joe Randazza, the former board chairman for the National Payment Card Association who played a pivotal in early industry decoupled debit card efforts. Randazza said some of the early retail resistance to decoupled debit was because many were focused—some might say obsessed—with defeating interchange legally and through lobbying to such an extent that decoupled debit was initially ignored. "Merchants really only wanted to litigate and legislate," Randazza said.
Cumberland declined to provide an interview for this story.