payment alternatives show promise

Retailers work around expensive credit card processing fees while integrating rewards for customer loyalty.

Due to the competitive nature of the current conveniencestore climate, retaining a loyal customer base ismore important than ever. But even when a store has astrong customer base, it can still be hurt by the excessiveprocessing costs on credit card transactions that have become afrightening standard in the industry. Because of that, many retailersare finding new forms of payment that offer the rewards thatcome with loyalty programs as well as low transaction costs. Theanswer may lie in proprietary debit and credit card programs.

Rewards for the Retailer and Customer

Even without a traditional loyalty program, Altoona,Pa.-based Sheetz Inc. has cultivated afaithful customerbas e ove r theyears. But like allretailers, the 337-store chain is losingvaluable margins tohigh credit card fees.Like most stores,Sheetz accepteddebit cards, whichoffer significantlylower processing feesthan credit cards, however,the problem wasconvincing customers to use their debitcards. So instead of trying to lure customers into debit transactions,Sheetz decided to persuade its customers into making“Debitz” transactions.

“The difference between our Debitz card and a typical debitcard that’s issued by a bank is that our card offers consumersSheetz rewards each time they use it,” explained Richard Steckroth,director of business for Sheetz. “We wanted a way to offer customersan incentive for choosing to pay with debit cards.”The Debitz MasterCard, which Sheetzlaunched in June, is essentially like anyother debit or check card. It’s a signaturebasedcard that takes money directlyfrom a customer ’s checking accounteach time it’s used, and can be usedwhere all MasterCards are accepted instores, online or at an ATM. The key difference,however, lies in the fact that Sheetz has married a loyalty programto the card.

Each time a Debitz card is used within a Sheetz store, points areawarded to the user’s account. Those points are then exchangedfor rewards, offered in the form of Sheetz’s “Z-card” gift cards.While Sheetz offers even more rewards for the card’s in-storeusage, the company still offers reward points for all other purchasesmade on the card.

To aid in the launch, Sheetz issued the card with CapitalOne, who developed a program that would make the Debitz card an obvious answer to anytransaction.

“We were looking to make aform of payment that wouldbe ubiquitous in the customers’eyes,” Steckroth said.“We didn’t want to make arewards debit program thatcould confuse the cardholderand force them tomemorize the few limitedlocations where they could use the card.With the program Capital One set up forus, we’re able to tie our card in with theMasterCard brand so the cardholder canuse it anywhere and not have to rememberwhere it can be accepted.”

Steckroth credits Capital One, who hesaid established a unique program for theDebitz card.

“We began developing this debit productseveral years ago, but we first launchedthe product earlier this year,” said TatianaStead, spokesperson for Capital One.“Sheetz was approached Sheetz as a partnerbecause of their reputation as aninnovator and their focus on building customerloyalty.”

The product offered by Capital Onebrings a new approach to the loyalty/debitscene – one that has its own unique nicheto fill, according to Stead. “We workedwith Sheetz to design a debit programthat works for them and their customers.We’ve offered co-branded credit cards inthe past, but this patent-pending debitapproach is unique,” she said.

Clearing the House

While Sheetz is offering a new debit/loyalty program all in one package, othercompanies are using already existingloyalty programs to offer customers anentirely new form of payment. Waycross,Ga.-based Flash Foods’ “Rewards in aFlash” loyalty program has been servingcustomers for the past two years, offeringrewards such as cents-off gallons purchasedin the store.

But now, by using Pinnacle Corp.’sLoyal Debit program, the company planson combining the Rewards in a Flashprogram with a debit card that uses anautomated clearing house (ACH) to processthe transactions, bringing both thechain and its customers big savings.

“We’re taking our already existing programand tying it to an ACH processor,”said Jenny Bullard, chief informationofficer for Flash Foods. “Credit card processingfees are costing us a lot of moneyand by offering a debit card tied to ourloyalty card, we can save money and passthose savings onto the customer.”

Simply put, ACH is used to directlytie electronic services – such as e-bill programsand direct deposit – to a checkingaccount. By using an ACH to process debitcard transactions, Flash Foods stands tocut down a lot of its processing costs.

“On average, credit card processing feescost us approximately 62 cents per transaction,”said Bullard. “When we use theACH to process the fees, it costs us around15 cents. That adds a lot to our bottom lineand gives us the opportunity to rewardour loyalty customers for using the card.”

Rewards in a Flash is very much a winwinfor Flash Foods and customers. Whilethe retailer saves money on processingfees, Rewards in a Flash debit card usersnot only save cents on the gallon justfor being a club member, they savean additional few cents on top of thatfor using their debit rewards card.Various in-store discounts are awardedas well. Flash Foods plans to launch theprogram chainwide in the fall.

Away with Fees

Shell Oil Products has been using adifferent approach for almost 15 years byintroducing a program that allows customersto pay with a credit card at no costto the chain’s retailers or wholesalers: theShell MasterCard.

Much like the Debitz card, the ShellMasterCard was created to offer customersa method of payment that coulddevelop customer loyalty by offering 5%rebates on all Shell gasoline purchases anda 1% rebate on every other purchase. Eventhough the card functions like an ordinaryMasterCard, Shell retailers do not pay anycosts to process the transactions.

“We came up with this concept whilewe were looking for a way to differentiateourselves from the competition and stillbuild loyalty,” said Carolyn Yapp, paymentsand loyalty manager for Shell.” Thecredit card world is an expensive place,and this card is a big benefit for customersand retailers. Customers can earn rebateswithout having to alter their spending patterns,and our retailers can accept a majorcredit card without having to worry aboutthe high processing fees.”

Along with the Shell MasterCard,which was given a revamp in 2003, Shell isalso getting set to introduce its Real TimeRewards program, a loyalty plan that utilizesscan data to better reward customers.The patent-pending process uses the pointof-sale system to collect scan data fromShell MasterCard holders without actuallyrequiring them to enroll in the program.

As customers buy products with theircards, the system tracks each purchaseand randomly generates a reward basedon their previous purchases.“The rewards are generated on thespot at the register or gas dispenser, andimmediately available for use,” said Yapp.

“There are tons of different rewards thatcan be offered. The retailers and wholesalersdecide for themselves what rewardsthey’d like to offer and when, creating acustomizable aspect that can better rewardcustomers.”

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