The independent sales organization Maverick Network Solutions Inc. plans to begin testing merchant private-label debit cards, using both the automated clearing house network and existing card processing networks to cut merchants' costs.
Maverick, of Wilmington, Del., said the nine-month trial, with an undisclosed New York-area merchant, is set to get under way by early July. It is designed to show that merchants offering the cards can save 50% to 75% in card acceptance costs compared with the cost of accepting credit cards.
"With the money a merchant saves in interchange fees, the company can put that into rewards programs to ensure customer loyalty," said Jim Shanahan, Maverick's chief executive.
Analysts, however, caution that the plan faces both technical challenges in building the network and operational challenges in managing a new issuance program.
Shanahan said the cards will use First Data Corp. to route transactions to other card networks, including those operated by Visa Inc., MasterCard Inc., Discover Financial Services Inc.'s Pulse unit and Metavante Technologies Inc.'s NYCE network.
Maverick plans to route the card transactions through the networks, paying switch fees but not interchange, and the networks will process the transactions, Shanahan said. Maverick plans to debit cardholders' checking accounts through the ACH network using account and bank-routing information from canceled checks that participants provide when registering.
Maverick sees merchants with annual sales of $10 million or more as best suited for the cards, its CEO said, though that figure is in flux.
The company is talking with other ISOs about distributing the product, Shanahan said.
Maverick has two revenue plans for its potential ISO partners, Shanahan said. One is a revenue-sharing plan based on a percentage of the revenue generated by the program. Another is based on per-transaction fees, and some might use both, Shanahan said.
The critical factor, he said, is the size of the ISO and the merchants it serves, because the Maverick program has fixed expenses not suited to mom-and-pop merchants.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said these types of programs seem particularly attractive to merchants such as gas stations and drugstores.
The programs have the potential to capture a "few percentage points of the overall card market," Bezard said, but in a market as big as card payments, even a small slice of the total would mean "a lot of money."
Any organization trying to bypass traditional credit processing networks has to ask itself if it is up to the task of building its own network, Bezard said.
The start-up Tempo Payments Inc. attempted to build its own debit network, but it has since changed its business model to focus on software.
"If a company is trying to build a network, it is probably going to be very difficult," Bezard said.
Another potential obstacle is asking merchants to manage an issuing program, he said. "Merchants typically are not very good at that," Bezard said.
Scott Strumello, an associate at Auriemma Consulting Group in Westbury, N.Y., said there are a number of large banks that control large shares of the market. An alternative payment program that signed one of these large banks — such as Bank of America Corp., Wells Fargo & Co. or JPMorgan Chase & Co., which Strumello cited as examples — would stand a better chance of success, he said.
"It helps them establish a presence and give them credibility in terms of consumer recognition," he said.
