Frustrated by the escalating costs of accepting noncash payments, supermarkets are looking for ways to bypass many of their banks and transaction processing suppliers.

The Food Marketing Institute, a supermarket trade group, has hired Concord EFS Inc., a Memphis transaction processor, to be a "strategic partner" in developing two payment options. They are to be tested this fall and rolled out in the first quarter.

In both cases, payments would be settled through the automated clearing house network, which is regarded as cheaper than the credit card networks and regional electronic funds transfer systems, most of which are bank-owned.

Ironically, Concord EFS this year acquired one prominent regional EFT network, MAC, as part of its purchase of Wilmington, Del.-based Electronic Payment Services Inc. from several superregional banks.

On top of that, Visa U.S.A., which has been scorned by many retailers for its pricing and other policies, would stand to benefit from increased use of the automated clearing house. Visa owns the largest private-sector ACH operation, a distant second in market share to the Federal Reserve System.

The EFT networks and their banks earn fees from debit card use at ATMs and point of sale terminals, and supermarkets are significant card-accepting merchants. Some network executives are fearful of losing this business. Supermarket payments comprise a relatively small percentage of credit card transactions, but the fact that grocers seem to be rebelling against credit and debit card fees reflects a deeper resentment toward card company rules.

Retailers of all sizes and stripes have shown dissatisfaction at recent decisions by Visa and MasterCard International to raise interchange rates, the interbank fees that set a floor for what card-accepting merchants are charged for transaction processing. Many of the biggest food and nonfood retailers are parties to a class action against the card associations, challenging rules that require acceptance of the MasterCard and Visa debit brands.

Supermarket owners are especially vocal complainers because their profit margins are in the neighborhood of 1% of sales -- a smaller percentage than the discounts that banks charge to clear and settle card payments, they point out.

Paul R. Martaus, president of Martaus & Associates, an electronic payments industry consulting firm in Mountain Home, Ark., said supermarkets are "as upset at the price increase as everybody else" and are hiring Concord as a way to "arm wrestle" with Visa and MasterCard over the interchange rates.

The supermarket interchange cost for an off-line Visa check card transaction is 40 cents. The rates for on-line debit cards, which are handled largely through the regional EFT networks, range from about 2 to 17 cents, and many networks have raised them recently.

One payment option from Concord EFS would be to use an automated clearing house card, or electronic check card, issued by the supermarket. It would be encoded with the data typically found on a paper check and could offer customers discounts or loyalty points as an incentive.

The second option, already common in a number of states, would be to convert checks into electronic debits, also cleared through the ACH. Once presented for data-recording at the checkout lane, the check is handed back to the customer, and the supermarket avoids having to hold and deposit the paper.

Concord itself uses the automated clearing house in its transaction processing business. Its EFS National Bank is one of the 25 largest originators of ACH payments.

Concord executives have billed the Food Marketing Institute project as a way to reduce supermarkets' check-handling costs. But some debit card executives say an ACH card could threaten their livelihood.

Before Concord won the assignment, the Washington-based trade group's request for proposals attracted more than 50 expressions of interest -- a sign that transaction processing companies smell a money-making opportunity. The field was winnowed to three, according to industry sources: Concord EFS, Huntington Bancshares of Columbus, Ohio, and Fifth Third Bancorp of Cincinnati.

The institute has been tight-lipped since the initial announcement in late June. It stated simply that the project goal is "to reduce the overall cost of accepting electronic payments in the supermarket industry."

In a more recent written statement, Joy Nicholas, the institute's director of applied technology, said the check conversion system is intended to reduce supermarkets' check-handling costs and the ACH card may reduce "card-based costs."

Concord has not set prices for these methods of payment, but it said supermarkets can expect to spend less than they currently do for check handling. A Concord spokeswoman said an ACH card transaction, however, would probably not cost less than one made with an on-line debit card using one of the regional networks.

In its most recent member survey, in 1997, the Food Marketing Institute found that supermarkets spent an average of 29 cents per on-line debit transaction, 80 cents per off-line debit transaction, and 45 cents for a check. Those figures included deposit-preparation time, bank charges, and other related costs.

One of those who perceive the new ACH options for supermarkets as a threat is Stan Paur, president and chief executive officer of Pulse EFT Association in Houston. More than 40% of Pulse's on-line point of sale volume comes from supermarkets, Mr. Paur said.

The supermarket trade group officials have done "what any businessman would do," Mr Paur said, and their moves suggest that "the financial industry has to be careful in its business judgments not to overprice these things."

Less alarmed is Dennis Lynch, president and CEO of NYCE Corp. of Woodcliff Lake, N.J. He said an ACH card could not offer as many benefits as an on-line debit card.

"There's nothing to me that would stand on the horizon as a material threat to NYCE," said Mr. Lynch, noting that grocery stores contribute 64% of NYCE's on-line business. "The underlying belief is that our real-time, deposit-access payment is still the most highly secure, most efficient, most customer-desirable payment, as well as merchant-desirable payment."

An ACH payment entry could bounce just as a paper check backed by insufficient funds does. That contrasts with on-line debit card transactions, which are not authorized unless a check on the spot finds that the funds are available.

Conceivably, a supermarket could set its own parameters for ACH card use, which could include affiliating with companies that keep records of people who have bounced checks.

Mr. Lynch said supermarkets' hostility seems to have stemmed largely from Visa and MasterCard activities, including the introduction in 1998 of a new Visa debit product, known as Visa check 2. This version, which has yet to be adopted widely, can operate either on-line with personal identification numbers, as at supermarket checkouts, or in off-line mode with cardholder signatures and delayed account debiting. A 25-cent interchange rate is charged per on-line debit, and in a power play against the regional networks, other debit logos are not permitted on these Visa cards.

Mr. Lynch said he could understand how supermarkets "could feel that they're not an active decision maker in these new emerging payment products."

David B. Lipkin, an electronic banking lawyer at the Philadelphia firm of Drinker Biddle & Reath, said the ACH card could have "a very substantial impact" on regional EFT networks because they would lose switching fees every time a customer used an ACH card instead of on-line debit.

But Mr. Lipkin did not foresee a threat to Visa and MasterCard debit products, which have greater brand strength and advertising power. With EFT network consolidation, more consumers are going to own on-line debit cards from companies they have never heard of, which will be to those networks' disadvantage, he said.

"People in the Southeast don't know what Star is, but that's the brand they're going to be using starting this fall," Mr. Lipkin said, referring to the Star System Inc. deal that is resulting in disappearance of the Florida-based Honor Technologies brand.

Concord has invested heavily in the on-line debit business. If all EFT networks suffered from the change, MAC would be among them.

Ruth Ann Marshall, executive vice president at Concord and formerly of Electronic Payment Services, said she does not see a threat. On the contrary, she said, the two new payment options could help to make the public more comfortable with electronic payments.

"On-line debit is the least costly (and) safest means of transacting business, and yet there's still a whole population that is worried about it," she said.

Some supermarkets already issue cards that meet the definition of ACH cards. The institute, working with Concord, is hoping to develop a program that can be tailored to individual supermarkets.

Concord currently processes ACH cards for Safeway Inc.'s Vons supermarkets in California, Safeway supermarkets in Denver, Acme Markets Inc. of Malvern, Pa., and Schnuck Markets Inc. of St. Louis. The company will "enhance the functionality" for the larger-scale program, Ms. Marshall said.

The idea of an ACH card that could be used at multiple supermarket chains has also been floated, though it remains to be seen how receptive grocers would be, given how competitive they tend to be, Ms. Marshall said. But if such a product caught on, "step three could be a national branded card," she said.

Concord does not expect all supermarkets to embrace both payment options.

Much will be dictated by geography, Ms. Marshall said. A "high-profile boutique" type of chain would probably choose the ACH card, but a larger, rural one -- with customers accustomed to check-writing -- might be more apt to pick check conversion.

Mr. Martaus, the electronic payments consultant, said he is skeptical about consumer interest despite the potential for loyalty programs linked to an ACH card. "I'm not convinced that this is going to be the panacea," he said.

These cards have been available for many years, he said. "How come everybody doesn't have one?"

"Consumers are ambivalent," Mr. Martaus said. "As long as they get to buy their stuff, they really don't care how they pay for it."

Ms. Nicholas of the institute said it is "difficult to determine which payment options will be most popular with customers. . . . We believe that FMI's retail expertise and payment ideas combined with Concord's financial services expertise will help us achieve our goal of an efficient payment system without unnecessary transaction costs."

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