Loyalty and ACH Alternative Payment Programs: A Win-Win for Retailers and Consumers

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Loyalty and ACH Alternative Payment Programs: A Win-Win for Retailers and Consumers

By Drew Mize, The Pinnacle Corp. - 05/08/2007
The rage about increasing credit-card fees is not subsiding anytime soon. The single most repeated topic at recent industry events including the NACStech Show, held in Nashville, Tenn., April 30-May 2, was that retailers paid a staggering $1.2 billion increase in credit-card fees in 2006 -- up nearly 23 percent from 2005 in an industry that only generated a 15 percent uptake in sales. Retailers continue to give away escalating percentages of profits to the credit-card companies.

Alternative payment methods are a hot discussion topic, focusing on how to get consumers to use something other than traditional credit cards as the preferred form of payment. The effort to persuade consumers' use of debit by prompting for a PIN when possible is one element of choice, but the consumer has no incentive. They prefer those airline miles or other incentives offered by credit-card providers, not to mention the grace period before their credit statement arrives. Even if you as a retailer are successful in this endeavor, PIN debit transaction fees are still unpalatable when you give in upwards of 70 cents to the processor for a debit transaction of 12 gallons of fuel.

Avoid traditional credit/debit card transaction fees by offering an alternate ACH form of payment.

An array of "alternative payment methods" is being deployed across the retail sector as a means to reduce the fees associated with typical credit and debit transactions. Discounts for cash payments, check acceptance, POS split dialing across multiple payment networks, and implementation of a self-hosted payment switch to bypass the payment processor are a few examples. Although these solutions are effective, consumers are rapidly moving away from cash, and consumer use of checks is on the rapid decline. Also, split dialing might not be allowed by your payment processor agreements and a payment switch might not fit your business model.

One alternative with a relatively low implementation cost is offering your consumers an ACH method of payment tied to an existing card they already carry in their wallet. In basic principal it allows a consumer to register a non-payment type card with their bank account, assign a PIN, and then use that card as a payment card in your retail locations. The payment transaction run on the ACH payment network rails funds removed from the consumer’s account. There are several ACH solution providers in the market that offer this type of solution, and the fees are far below what retailers pay for a typical credit- or debit-transaction. In fact, a 12 gallon fill-up at $2.79/gallon, using a fairly aggressive credit/debit transaction fee rate of $.02 + 2 percent of the transaction amount, retailers will give up $.69 for a typical credit/debit-card transaction. Compare this to a flat, per transaction ACH fee in the neighborhood of $.15, and retailers will have put $ .54 ($.045/gallon) back to the bottom line.

Offer a discount to ensure the consumer is incented to use their ACH payment method.

Nothing speaks louder, though, than instant rewards, and when it comes to fuel discounts, consumers border insanity. Some will drive across town to save a few cents per gallon, not thinking about the amount of fuel to get them there. A penny will entice them to make that left turn at a busy intersection. Fuel is probably the closest commodity item that consumers directly correlate to cash.

Offering a consumer a cash discount to use their ACH payment card is far more powerful to the consumer than that plasma TV they will have to save for two years to get. It's an immediate discount; immediate gratification. Using the aforementioned credit/debit vs. ACH example above, offer the consumer a $.03/gallon discount for using their ACH payment card instead of their credit card and a retailer will still put $.015 per gallon to the bottom line while the consumer is ecstatic about the discount -- they feel as if they've beaten the system, being part of some type of elite group.

Leverage the consumer's ACH payment method with your loyalty program to keep this payment option front and center in the consumer's mind.

As loyalty programs become more mainstream in our industry, bottom line impact is more evident. When managed well, an effective loyalty program will have dramatic upward effects on profits. Consumers like to use their loyalty card because they are earning benefits for spending money in a retailer's location. They don't forget to pull that card out. They remember it every time they purchase fuel or come to the counter with a cup of coffee.

Leveraging your existing loyalty card that the consumer already carries by adding ACH payment abilities will help promote that form of payment. There is no additional card to keep up with or hunt in a wallet for because it's right there, and consumers are already going to use it for their loyalty rewards. As if offering a cent per gallon or in-store discount for using their ACH card as a form of payment is not loyalty enough, imagine the consumer draw when you combine the loyalty discount on top of that.

Of course there are several considerations that must be evaluated before entering into an ACH payments program for your consumers -- more so when combining ACH with your loyalty program:

• Your point-of-sale (POS) will need to have integration support with the specific ACH payments provider that you choose

• The process for enrolling in your ACH payments program needs to be quick and easy or consumers won’t use it. Enrollment programs that require any type of mail-in forms create a barrier to consumer acceptance.

• Successful ACH payment programs utilize an existing card that the consumer already carries and is motivated to use. Adding a new card to the consumer's wallet will be a challenge.