Supermarkets are beginning to flex their muscle in the payments world, steering shoppers toward methods that are less expensive for merchants and taking an active role in the development of alternative payment choices, according to industry executives.
Grocers at the Food Marketing Institute's Retail Electronic Payment Systems Conference in Baltimore this month said the escalating cost of accepting card payments requires bold measures.
Fees for taking bank cards are "probably the single most expensive issue that faces the retail industry today," said Scott Plumblee, senior vice president of supermarket and major retail at Concord EFS, a Memphis transaction processor. "It's up to the retail community to create the changes that will help lower their cost."
Mr. Plumblee said that consumers must have payment options but "there are things that you can do to actually influence behavior."
The Washington-based Food Marketing Institute, the largest supermarket trade group, has taken the initiative by hiring Concord EFS to develop payment methods that use the automated clearing house for clearing and settlement. Check truncation, which caters to paper-check writers, lets cashiers scan check data at the point of sale, eliminating paper from the process. Under another system, an ACH card debits the shopper's checking account.
"ACH as a part of the payment mix is a very attractive way to lower costs," Mr. Plumblee said. "The bottom line here is that the alternative is expensive, very expensive."
Supermarkets have not adopted either method on a wide scale, but this is their first collective effort to advance these options. The institute is "developing standards for the entire industry irrespective of whether or not you use Concord," Mr. Plumblee told about 90 people at the conference.
Grocers have discussed sharing a national data base and a national ACH brand as well. "There's nothing magic about introducing a new brand into the marketplace," Mr. Plumblee said. "It can be done, and it can be shared across the retail industry."
Another payment form that grocers are pushing for economic reasons is PIN-based debit cards, which are less expensive for retailers to accept than the signature-based check cards that banks issue through Visa and MasterCard.Supermarkets are not the only ones up in arms about the rate differential. A class action led by the country's major retailers is pending on the subject in U.S. District Court for the Eastern District of New York.
At the institute's conference, executives from the regional ATM networks - which have everything to gain from a growing use of PIN-based debit cards - took the opportunity to preach to the converted.
Paul Schmelzer, executive vice president of Maitland, Fla.-based Star Systems Inc., the largest debit network, encouraged the grocers to have cashiers prompt customers for a personal identification number, which activates an on-line transaction. Some cards come with both types of capability.
"Not all debit cards are created equal," said Michael Caruana, national sales director of Woodcliff Lake, N.J.-based NYCE Corp., a prominent debit network. On-line debit networks have taken "a rational and consistent approach to pricing over the years," he said.
More information about the relative costs of various payment methods will be available next spring after PriceWaterhouseCoopers completes a study on the subject commissioned in August by the food institute.
Thomas E. Hall, a consultant at PriceWaterhouseCoopers, said the study will compare the costs of cash, checks, credit, on-line and off-line debit, electronic benefits transfer, check truncation, and ACH cards. Supermarkets of all sizes will be monitored live; cycle times will be measured; and all indirect costs related to back-office support, corporate office procedures, and overall reconciliation will be accounted for, he said.
American Express Co. anticipates its new Blue card will play a big role at the checkout counter. The card, which has a magnetic stripe and a chip, could be used to enhance loyalty and electronic coupon programs, said Martin Wittwer, vice president and general manager for smart card enterprise development at American Express.
And Amex says this is only the beginning.
With the Blue card, more than one loyalty program could be stored on a chip, so people would not have to walk around with stacks of loyalty cards, Mr. Wittwer said. Using smart card readers being distributed by Amex, consumers could download electronic coupons from the Internet onto the Blue card and present them at the point of sale, much as people today clip coupons from newspaper circulars.
"We're basically in the process of scanning and scouting out various industries and understanding in which areas there might be potential for smart card applications," Mr. Wittwer said.