First Data Corp. said the growing interest in using automated clearing house payment cards at gas stations could help it convert merchant clients in other industries.
The cards already have a champion in Royal Dutch Shell PLC, which said its gas station operators are reporting substantial cost reductions when customers use the card it introduced last month. The gasoline company said the Shell Saver Card is attracting more interest than an earlier attempt to offer ACH payments through a biometric fingerprint system.
"There is an extreme amount of interest" in ACH cards now. Timothy J. Horton, the vice president of product development at First Data's Telecheck Services Inc., said in an interview this week. "I think, with Shell launching a national program, it has raised everyone's eyebrows in the industry. Everybody's kind of re-evaluating their payment strategy."
ACH payments are cheaper for merchants to accept than credit and debit card payments, Mr. Horton said, and First Data is pitching those savings to its customers in the fuel, fast food, grocery, pharmacy, and big-box retail industries, which have strong brand loyalty and repeat business.
Merchants are happy with the lower processing costs, he said, and First Data makes more revenue on each ACH payment than it does from processing credit card purchases, because it also provides services such as guaranteeing the transactions.
"In this case, we actually have an enhanced revenue stream, because we're warranting the transaction" — something First Data does not do for credit card transactions, he said.
Shell's attempt to introduce ACH payments through Solidus Networks Inc.'s Pay By Touch fingerprint biometric system ended in March, when Solidus was going through bankruptcy and stopped supporting its technology.
Elizabeth Hudson, head of U.S. consumer cards at Shell Oil Products U.S., said ACH payments provide "a 50% savings compared to third-party cards" for gas station operators. "We're seeing a stronger pull" with the Saver Card than with Pay By Touch, mainly because authorizing payments with a fingerprint was unfamiliar. "Customers are very comfortable with payment cards," she said.
To reduce its exposure to risk, First Data requires a PIN for all ACH card transactions. A small number of Shell stations do not accept PIN debit, but Ms. Hudson said Shell is working with those stations to update their systems.
Mr. Horton said First Data can fold its ACH cards into a merchant's loyalty program and can offer the payment service through other devices, such as its Go-Tag contactless payment stickers.
Adil Moussa, an analyst at Aite Group LLC, said First Data's large base of merchant clients provides an easy market for ACH payment services. "You don't need these existing relationships," but "it just makes it an easier approach."
The payment format will appeal to merchants, he said. "ACH is really the lowest cost possible that you can do right now, using an instrument that looks like a card and can be used that way."
Bruce Cundiff, a director of payment research and consulting for Javelin Strategy and Research, said the loyalty aspect of a merchant-specific card could be just as appealing as the lower cost of acceptance for many merchants.
"The loyalty aspect cannot be understated, because you have a captive user base," he said.
But any hiccups in early deployment could sour consumers to the concept, he said; being unable to use an ACH card at a Shell station that does not accept PIN debit may turn consumers off to trying the format anywhere.
Lack of acceptance is "a major hurdle to consumer usage," he said. "That's a big deal."
ACH cards are an appealing option for merchants who say interchange rates are burdensome, he said. "If you don't like interchange, then do something about it. I love it: Shell is doing something about it."
