Fast-food restaurants have been busy installing terminals to accept credit and debit cards, but now some are looking at a plastic option that is cheaper to process and tilted toward repeat business - prepaid gift cards.
Burger King Corp., which announced an expansion of its card acceptance in February, is considering issuing gift cards, according to its processor. Dunkin' Donuts Inc. launched a prepaid test last year and is considering a wider rollout. CKE Restaurants Inc. says its Carl's Jr. chain, which has accepted debit and credit cards for seven years, will conduct a major stored-value pilot.
And smaller companies, such as Zaxby's, a southern chain specializing in fried chicken, have been publicizing their success with the product.
Major chains like McDonald's Corp. and Wendy's International Inc. say they are focused on accepting credit and debit cards, but payment system vendors like First Data Corp. are pushing prepaid products as an attractive part of the acceptance package. Gift cards are a good product for regular customers and can help restaurants save on fees, because they can be processed on a proprietary network that bypasses Visa and MasterCard, the vendors say.
First Data, which like other payment networks stands to gain from the conversion of the stubbornly cash-based fast-food business, says those companies have been expressing more interest lately in prepaid products.
Gregory J. Holmes, the senior vice president of strategic market development for First Data Merchant Services, in Denver, said Burger King, one of its customers, "wanted to take full advantage" of payment acceptance when it made its commitment to take cards at more restaurants.
"They wanted to look at processing, gift cards, spending cards, loyalty, and payroll," Mr. Holmes said in an interview last month.
According to the Miami restaurant company, only 43% of its locations currently accept credit and debit cards.
A spokeswoman for Carl's Jr. said around 440 company-owned restaurants will begin testing gift cards soon.
Dunkin' Donuts, a subsidiary of Allied Domecq PLC, said 53 Maine locations began offering reloadable cards last year. The company is evaluating a national rollout for all 5,400 locations.
Over the past two years fast-food restaurants have benefited from lower interchange rates and increased courting by Visa U.S.A. and MasterCard International. Last month McDonald's announced that it would roll out wide acceptance of all major payment card brands.
Vendors say that prepaid cards would be an easy add-on and that the popularity of pre-paid phone and other retailer gift cards also makes reloadable fast-food cards more tenable.
"It is only natural to assume that if a merchant is looking to make a hardware decision based on a payment initiative, it might help push along gift cards," said Bill Farris, the director of emerging card products at the Dallas merchant processor Paymentech LP, a joint venture of Bank One Corp. and First Data.
Mr. Farris said several of its quick-serve clients have begun offering stored-value cards. Some companies are pitching them as a replacement for gift certificates; others as a reloadable card for regular customers, he said.
But Bob Bertini, a spokesman for Wendy's, said in an interview Tuesday that it may take some time for restaurants that have just begun accepting credit and debit cards to get around to adding ancillary products. "Right now our focus is on rolling out electronic payment ability."
The Dublin, Ohio, company began equipping its U.S. restaurants with payment terminals in July, and around 75% of the restaurants are now set up, Mr. Bertini said. Wendy's sells paper gift certificates, but any gift card testing would have to wait at least until all the restaurants have card terminals, he said. "We want people to be able to find a restaurant" that takes their cards.
A spokesman for McDonald's said it does not plan to issue gift cards in the near future.
One Zaxby's location, in Douglas, Ga., says it has sold 500 prepaid cards in the last six months to students of the nearby South Georgia College, whose campus cafeteria is closed on weekends.
Zaxby's, a "fast casual" chain that serves "mind-bendingly good" fried chicken, offers its cards as a meal budgeting plan for students. "It's helped increase our store traffic throughout the week," said Danny DeMersseman, who runs the Douglas restaurant, in a press release last month.
The most popular prepaid program is run by Starbucks Corp., which has offered a reloadable card since 2001. The Seattle coffee shop chain has sold more than 26 million gift cards, which generate around 10% of its North American retail revenue, according to company reports.
A spokeswoman credited the gift card with starting an industry trend. In October, Starbucks introduced the Duetto card, a product issued by Bank One that functions as both a Visa credit card and a Starbucks stored-value card. Starbucks would not say how many have been issued.
John C. Gould, an analyst with TowerGroup Inc., a Needham, Mass. consulting firm owned by MasterCard, said fast-food restaurants might have a hard time replicating Starbucks' success in the prepaid market. "I can't imagine it will be a big market." he said.
