CALIF. CHAIN TO ROLL OUT COMBINED DEBIT/LOYALTY CARD

DANA DUBBS

COTTONWOOD, Calif. -- After a year of testing a system that adds debit payment capability to its loyalty card, Holiday Quality Foods here plans to roll out the program chainwide over the next month.

In addition to utilizing its existing point-of-sale infrastructure, transactions through the hybrid card are lowering costs and even generating revenue, said Richard Morgan Jr., president of Holiday Quality Foods, which operates 24 supermarkets and one convenience store in Northern California.

The card, which processes debit payments via the ACH (automated clearinghouse), was developed by Debitman Card Inc. (DCI), Chico, Calif.

By signing on with DCI to issue and accept Debitman cards, said Morgan, Holiday can offer loyal shoppers the convenience of using a single, branded card at the POS for payment, cash-back and rewards. Unlike the growing number of credit card companies that charge consumers for using their debit cards, Debitman does not charge shoppers fees, Morgan said.

Compared with traditional debit, credit, check, and cash payment methods, a Debitman transaction is the cheapest for Holiday "as far as cost in the store," Morgan said." In fact, it can be a 10th of the cost of some other methods.

Doug Mills, DCI's executive vice president, card issuance, said a Debitman transaction normally costs a retailer 15 cents. This, noted Morgan, is about a third of the cost of a typical debit transaction.

In addition, every time a Debitman transaction is approved, the retailer who issued that card gets six cents back from DCI, whether the card was used at an issuing retailer's store or at another participating merchant's location, stated Mills.

John Briggs, chairman of Food Marketing Institute's electronic payment systems committee and senior vice president, chief financial officer, and treasurer at Hy-Vee, West Des Moines, Iowa, told SN he sees Debitman as an opportunity to help reduce the large and growing cost of interchange. Yet, he said, "I think their challenge is going to be to get the cards into consumers' hands and help them use those cards."

Other grocers using the Debitman system include Compton's Markets, Meijer and Piggly Wiggly Carolina Co., said Mills.

"Operationally, it's no different accepting Debitman than accepting a [traditional] debit card," said Morgan. The shopper hands the card to the cashier, who scans it for loyalty information and gives it back to the consumer. Then the consumer runs it through a VeriFone card reader and enters a PIN (personal identification number).

Transactions are routed to Holiday's processor, Fifth Third Bank Processing Solutions, which sends them to DCI's network for approval, said Mills. As soon as DCI sends back a positive response, the retailer's funds are guaranteed. At the end of the day, when DCI does its processing, "we go through the ACH to move the funds out of the cardholder's account back into our settlement account. We are not doing an online verification of funds like what happens in the online debit world. There is a level of risk that we are assuming, but it's proved to be very, very minimal," said Mills.

Holiday currently issues and activates Debitman cards in-store using a workstation and software developed by DCI, and the entire process takes about three minutes, said Mills. The consumer must present a blank check and driver's license, provide a phone number, and sign and date a cardholder agreement. Bank account and other pertinent information are electronically imaged and stored in Debitman's database; consumers select their own PIN. "When we activate the card, we provide a daily record of that card activity back to the retailer so they can add that into their own database for their purposes," said Mills.

Morgan told SN one of Holiday's challenges is overcoming consumer reluctance about providing their bank account information. Also, he said, because Holiday's first version of the card looked too similar to its existing loyalty card, consumers thought it was the same thing, and passed on the offer. Redesigning the card has helped, said Morgan. To encourage the card's use, he said, Holiday awards extra points every time the Debitman card is used, whether at a Holiday store or at another participating retailer, such as Walgreens or Best Buy.

Though he declined to state numbers, Morgan said, "We get a good percentage of our loyal customers signing up and using it." He also noted, "When we get a customer that's using it, they do tend to use it fairly frequently. As Debitman adds retailers, we see the use go up drastically."