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As Maverick Network Solutions Inc. prepares to sign merchants to issue and accept the Wilmington, Del.-based company's private-label PIN-debit card, it will have to overcome obstacles from these merchants, analysts say. Maverick announced earlier this week it is testing its program with an undisclosed merchant that could help merchants save 50% to 75% in card acceptance costs compared with the cost of accepting credit cards (CardLine, 5/19). Analysts, however, caution that the plan faces both technical challenges in building the network and operational challenges in managing a new issuance program. Gwenn Bezard, a research director at Aite Group LLC of Boston, says 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 says, 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 says. 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 (CardLine, 8/28/08). "If a company is trying to build a network, it is probably going to be very difficult," Bezard says. Another potential obstacle is asking merchants to manage an issuing program, he says. "Merchants typically are not very good at that," Bezard says. Scott Strumello, an associate at Auriemma Consulting Group in Westbury, N.Y., says 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 cites as examples—would stand a better chance of success, he says. "It helps them establish a presence and gives them credibility in terms of consumer recognition," he says.
