Wal-Mart Stores Inc. has agreed to accept merchant-issued debit cards that use the fledgling payment network developed by Debitman Card Inc.
Debitman says its 5-year-old PIN debit network offers merchants a lower-cost alternative to bank-issued debit cards. But the Chico, Calif., company has had little success in winning customers, and the Wal-Mart deal, announced Monday, is a major step forward.
Wal-Mart, which is accepting Debitman cards at all of its Wal-Mart and Sam's Club stores, says debit is its top payment option. The company has demonstrated that it is willing to consider just about any way to reduce costs, and the agreement is likely to yield some reduction of its card processing expenses. (The Bentonville, Ark., retailing giant's other efforts have included several industrial loan charter applications, one of which is pending, so it can act as its own merchant-acquirer.)
Marty Heires, a Wal-Mart spokesman, downplayed the potential cost-savings of the deal.
"It's just another PIN debit option for our customers, and PIN debit is the most popular option of payment for us," he said in an interview. "We'd like to expand that option as widely as possible."
R. Scott Hatfield, the president and chief operating officer of Debitman, said that having Wal-Mart on board could prompt other merchants to issue and accept the cards.
Observers said that the deal is important for Debitman but probably will not transform the payments industry, because Wal-Mart has only agreed to accept the cards, not issue them.
There are few Debitman cards in use. Mr. Hatfield would not say how many there are, but Tim Sloane, the director for debit advisory services for Mercator Advisory Group Inc. of Waltham, Mass., said that the number is small; "I think we're talking tens of thousands," he said, a tiny fraction of the millions of bank-issued debit cards.
The Debitman network is different from those used by banking companies.
Like standard debit purchases, a Debitman transaction initially moves to the retailer's processor. But unlike standard debit purchases, a Debitman transaction then moves to the Debitman system, which uses the automated clearing house system to debit customers' bank accounts and remit payment to the retailer.
Debitman charges the retailer a flat fee of 15 cents a transaction, 6 to 9 cents of which is paid to the merchant that issued the card, depending on volume. The cards are often connected to retailers' loyalty programs, and if the customer uses a card at the issuer's store, the processing fee is reduced.
By contrast, standard transactions are routed over a debit network to the customer's bank, which charges the merchant a processing fee. The average processing fee for credit and debit card purchases is 1.74%, according to the industry newsletter The Nilson Report.
Mr. Heires said Wal-Mart has no plans to issue Debitman cards.
According to Mr. Hatfield, one of Wal-Mart's conditions for accepting Debitman cards was that the payment company had to establish an electronic link to one of the retailer's merchant processors. He would not name that processor; First Data Corp. is Wal-Mart's most prominent processor.
Even if Wal-Mart does not offer Debitman's cards, having the retailer accept the cards will boost the network's value to other merchants, Mr. Hatfield said. "What's nice is other retailers out there that issue the card can now, in effect, make interchange revenues off of Wal-Mart."
He said that he is "hoping someday they are going to issue the card." Some merchants who have been on the fence about issuing the cards "will probably be pushed over the edge" and will "want to issue right away."
Analysts said that a decision by Wal-Mart to start issuing the card would have much bigger ramifications than the current deal.
Mr. Sloane said that getting Wal-Mart to accept Debitman cards could prompt other retailers to issue them, but he said that he did not expect Wal-Mart to change its mind about issuing them.
Wal-Mart more likely views the deal as "another chip" to use in its talks with the major card associations "to negotiate lower interchange rates."
Leon Majors, the president of ESP Consulting Group, a Salisbury, Md., division of Phoenix Marketing International of Rhinebeck, N.Y., agreed that Wal-Mart is "developing options" for its interchange strategy. "This is just another thing they accept."
However, Bruce Cundiff, a research analyst for Javelin Strategy and Research of Pleasanton, Calif., said that if Wal-Mart did decide to issue Debitman cards, "it could definitely put a wrinkle" in the payments industry.
"I think a lot of … [the issuing decision] depends on how this relationship with Wal-Mart evolves and what type of control Wal-Mart wants to have."
