HSBC North America Inc.'s retail services unit is departing from its private-label credit card issuing strategy by offering customers a PIN-based, private-label debit card with a low interchange rate and customized rewards.
The Prospect Heights, Ill., unit of HSBC Holdings PLC has teamed with two partners, and says the card offers a way for supermarket chains and other retailers that operate on razor-thin margins to reduce the interchange costs of accepting Visa U.S.A. and MasterCard Inc. credit signature debit cards.
Analysts said the card should appeal to merchants frustrated over interchange fees.
HSBC and Tempo Payments Inc. (formerly Debitman Card Inc.) are two of the three companies that launched the OptiPay card this month (HSBC invested $8.7 million in Tempo last year). The third is Concept Shopping Inc., which develops loyalty programs.
Daniel Eckert, who heads venture development at HSBC Retail Services, said he expects within six months to have merchants signed up to offer OptiPay. He called the card a new direction for HSBC, which offers private-label credit card programs for such merchants as Best Buy Co. Inc. and Neiman Marcus Group Inc.
The OptiPay cards will carry the merchant's brand and be linked to cardholders' checking accounts, with transactions moving across the automated clearing house network, which is generally less expensive than accepting credit card transactions.
As with its private-label card program, HSBC will provide such services as card administration and marketing.
Merchant acquirers charge merchants a fee to process electronic payments. With bank cards, the acquirer takes a small piece of the fee and passes on the bulk of it, the interchange, to the bank that issued the card. With OptiPay, merchants could avoid all that, Mr. Eckert said.
HSBC is targeting merchants that meet a certain profile - generally low-ticket purchases, quick checkout, and a high frequency of repeat customer visits.
"Grocers fit that, along with drugstores, convenience stores, gas stations, and some electronic stores," Mr. Eckert said. Such merchants tend to have low margins and will be eager to slash their interchange expenses, he said.
Tempo allows merchants to issue their own card using the Tempo brand, much like Visa- or MasterCard-branded cards. Issuing merchants pay Tempo a flat fee of 15 cents to 20 cents per transaction when the cardholder uses the card, according to a study published in December by Celent LLC.
Issuing merchants can also earn a discount of 5 cents to 10 cents per transaction, depending on volume, and the retailer earns a share of the transaction fee when its card is used at other Tempo merchants.
Tempo, of San Mateo, Calif., says its card is accepted at 200,000 merchant outlets, including those of Wal-Mart Stores Inc., Sam's Club, CVS, QuikTrip Corp., Kohl's, Macy's, Burger King, and Barnes & Noble.
Dan Schatt, senior financial analyst with Celent, said a Tempo-branded card could yield considerable savings in transaction fees for convenience stores where transactions typically are $30 to $50.
A Tempo card transaction costs 32 cents to 50 cents less to process than a typical credit card transaction for these stores, and 16 cents to 20 cents less than a signature debit card transaction, Mr. Schatt said.
The merchant can use those saving to fund rewards and loyalty programs. "This card ties the payment with a loyalty program, Mr. Schatt said. "That gives the merchants a better tool to reward cardholders."
He said many merchants are already trying to find ways to cut their interchange expenses - by prompting customers to use PIN debit cards, for instance.
Concept Shopping's program is designed to appeal to grocers, whose loyalty card programs have had poor results over the years, said John Hennessy, the Lisle, Ill., company's vice president of sales and marketing.
Customers who use an OptiPay card will receive the usual discounts offered with grocery loyalty cards. In addition, the card-issuer merchant will deposit a credit into the cardholder's account.
That credit could be redeemed for future purchases at the card issuer's store, which should lead to repeat visits, Mr. Hennessy said.
HSBC is discussing the product with its private-label clients and nonmerchant clients, Mr. Eckert said.
