To paraphrase Mark Twain, rumors of the demise of the decoupled-debit card may have been greatly exaggerated.
National Payment Card Association offers a decoupled-debit card that has operated on a closed-loop model for convenience stores and other petroleum merchants for seven years. On Aug. 8, the company began offering open-loop cards that authorize transactions over the Pulse network.
The Coconut Creek, Fla.-based company has made a reasonable profit by charging merchants an average of 15 cents per transaction as a closed-loop card and will continue to prosper at the same merchant fee even with the addition of charges from Discover Financial Services to use the Pulse network, Joe Randazza, the firm’s president and CEO, said in a phone interview Aug. 10.
The company saves money by operating as the processor and issuer, thus keeping all of the interchange revenue, Randazza said.
In general, the business model for decoupled-debit cards has come into question because of a cap on interchange fees card issuers may charge on all debit cards, unless the issuer has less than $10 billion in assets. Issuers have been charging an average of 44 cents per transactions, but as a result of the Durbin amendment to the Dodd-Frank Act, the Federal Reserve Board will limit such fees to 21 cents as of Oct. 1, though issuers may add a few cents to cover fraud and other services.
Unlike standard debit cards, which withdraw funds from a single account, decoupled-debit cards have access to many accounts. The viability of decoupled debit was questioned when Tempo Payments Inc., a pioneer in the field, announced last month that it was shutting down operations because it could not sustain itself with fees within the cap (
National Payment, however, has enough margin within the cap to compensate independent sales organizations that sign up merchants to offer and accept the open-loop card, Randazza said.
Stephen Goodrich, CEO of PowerPay LLC, a Portland, Maine-based ISO, has served on the National Payment board for more than a year and told PaymentsSource Aug. 9 that National Payment is developing a model for its ISO program.
“I hesitate to put a date on it,” Goodrich said of the ISO program, indicating completion could come “very, very soon.” Infrastructure for the open-loop cards already is in place, Goodrich noted.
Goodrich described the process of creating the plan as “defining, refining and then testing with a few ISOs to see that it meets expectations as a compensation plan.”
Merchant should be able to accept the cards at a cost lower than they pay for other network cards because the settlement occurs over the automated clearinghouse system, Goodrich said. National Payment has not decided how to compensate ISOs, he noted.
“It may or may not be equivalent to MasterCard and Visa,” Goodrich said of ISO compensation. Though he was unsure whether ISOs would decide on their own markup, he viewed that arrangement as “probably workable.”
Once the company develops the plan, it intends to introduce the details at trade shows and in the trade press, Goodrich said.
Merchants participating in National Payments’ closed-loop network have 10,000 total locations, Randazza said. Those merchants process from 3% to 24% of their payments through the network, he said.
The network operates a loyalty scheme through which merchants refund part of their customers’ purchases, Randazza said. Some reward their customers by returning as much as 15 cents for each gallon of gasoline they buy, he noted.
The word “association” at the end of the company’s name does not indicate it operates as a membership-oriented entity. The name resulted from rules in Delaware, where the company is incorporated, Randazza says.
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