Via Slashdot, I read this BusinessWeek article that talks about a startup company whose idea is to combine your driver’s license and your debit card into just one piece of plastic.
While this sets off all sorts of alarm sounds for me, I can’t deny that they’ve got some strong synergistic thinking going on here. Retailers are going to like it for a couple of reasons: first and foremost, the cards are not tied to credit card companies, who charge high fees to process transactions (side note: whenever a local merchant asks me “debit or credit?” when I use my card, I always choose debit because the merchant pays less for my convenience of using the card). Meanwhile, because the financial transaction is tied to a valid ID, the retailer has personal information that they can use for a variety of purposes (not all of them beneficial to the customer, unfortunately).
I hope you can see where the pitfalls are with this idea so that I don’t have to go through all of them again. But I think they’ve probably come up with an idea that’s going to go over well with everybody except the credit card companies. They’re test-marketing the combo cards now in Texas and have very wisely started out with gas station/convenience stores, which traditionally have very slim profit margins and will see the most benefit from reducing credit card fees. Plus customers have been very receptive to pay-at-the-pump systems — it’s a good introduction of the idea to consumers before it starts to manifest itself in other retail interactions.
At the moment, only 24 states issue driver’s licenses with magnetic strips, which is probably the single biggest hurdle to this concept. Their other concept, though, is to offer this same service through loyalty card programs (you know, the cards you use at the supermarket). While this lacks some of the synergy of sharing a payment system with a legal identification system, not to mention lacking the promise of eliminating plastic cards from your wallet, it’s still likely to catch on AND has a national market.
What’s not mentioned in the BusinessWeek article (or at NPC’s own website) is what the impact of the impending RealID program from the Gestapo will have on their business model. On the face of it, it would seem like a standardized national ID card with magnetic striping would give these guys the green light to go big. But there’s a lot of opposition to RealID, and backlash could limit them, especially in a state like Massachusetts, where our licenses don’t have mag strips and our political sensibilities often determine our consumer behavior.
Comments:
The idea for this came from Joe Randazza of National Paymentcard LLC in Boca Raton. The problem for US Merchants is the egregious increases of Interchange fees impacting the bottom line of US Merchants. Last year there was a 22% increase in Card Association fees to the Convenience Store industry.
Card Association fees are 8.3% of total operating costs for Convenience Store operators. See www.nacsonline.com. Fees are twice as high in the US as in Canada. While fraud rates are decreasing. There is no market competition to speak of and the Card Associations own the cash flow of US Merchants. This solution offers US Merchants the opportunity to direct the savings in Interchange fees into a Loyalty or frequency program and the chance to take back their cash flow.
ACH PAY LLC is developing a credit card terminal interface for the National Paymentcard ACH Service Bureau for US Merchants.
Randall Shake
CEO
ACH PAY LLC
Posted by Randall Shake [URL] on 05/22/07
Thanks for your comment, Randall. I will be watching this with great interest (no pun intended).
Posted by Brian [URL] on 05/23/07
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