Unbanked and credit-deprived consumers are a major demographic for fuel retailers—and in today’s economy their numbers are on the rise. Yet the nation’s 40 million unbanked consumers command $1 trillion in purchasing power, said Dan Henry, CEO of NetSpend Corporation, a provider of prepaid debit cards headquartered in Austin, Tex.
“There’s a large demographic that lives in a cash world and is looking for a safe place to cash checks and pay bills. And since banks are raising fees to generate income, more people are choosing to leave,” added former banker Frank Sutton, now owner of Great Stops LLC. Based in Durham, N.C., the convenience store chain offers check cashing, money transfer, bill payment, and money orders through financial services kiosks. The owners have developed Check Solutions LLC to offer the system to other c-store chains.
Consumers who lack traditional debit or credit cards need alternative payment solutions, points out Jim Contardi, senior vice president and division manager of prepaid services for Atlanta-based First Data Corporation, which provides transaction solutions for merchants. “Payment trends have shown the number of credit transactions declining in favor of debit and prepaid debit,” he reported. Yet fuel retailers can turn the trend to their advantage through customer incentives. “Loyalty programs can be attached to any payment type,” he said.
Through today’s technology, even customers who pay with cash or checks can be electronically enrolled in loyalty programs. “Rather than have these customers fill out paper forms and then issuing them punch cards, you can capture information and easily load it into a
database for future use,” said Celeste Monzon, customer relations manager for Card Scanning Solutions (CSSN) in Culver City, Calif.
CSSN has developed optical character recognition (OCR) image-processing technology which it claims is 98 percent accurate in reading drivers licenses, ID cards and checks. Thus not only can retailers capture data on their non-credit customers, but marketers who offer fleet fueling, said Monzon, “can tell fleet owners that all their drivers have to do is swipe their licenses.”
Playing Your Cards Right
Even if tough times are reducing consumer access to credit, fuel retailers can actually market the benefits of alternative payment systems. For example, consumers who bounce checks pay hefty overdraft fees. But those who use prepaid debit cards can only spend up to the amount loaded onto the card, eliminating overdrafts.
Avoiding overdrafts can have another benefit. “If you bounce a check,” said NetSpend’s Henry, “traditional banks might not want to give you an account. Some banks will turn down one out of four people who apply for a checking account.”
The prepaid debit cards offered by NetSpend “provide the user a safe alternative,” said Henry. “We offer no-cost, direct-deposit, online banking and bill paying, as well as free money transfers from card to card. And customers have access to their cash 24 to 48 hours faster than with a traditional bank account. They even get a text message or e-mail alert within seconds after a transaction that also includes their current balance.”
These features are important since the average daily balance of a NetSpend customer is
fifty dollars. “In this demographic, overdrafts with traditional checking accounts are more common,” Henry said. But instead of the user getting hit with another overdraft fee, the NetSpend card is simply denied.
When a customer initially purchases a NetSpend card at a convenience store or fueling site, the retailer issues a temporary card. The customer then makes a phone call to activate the card and can subsequently load up to $500 at a time. The card interfaces with the retailer’s point-of-sale system. Since the card is bank-issued, FDIC-insured, VISA-branded and personalized, Henry said, “It works just like any other debit option.”
Potential benefits for fuel retailers are many. “Your store becomes like a bank brand for the customer,” said Henry, thus pulling the customer into the c-store on a regular basis. “And the store that originally sold the card gets a portion of the profits when the card is purchased, plus a portion of future transactions when the card is reloaded.” Retailers receive regular market reports that accompany their commission checks.
Check Solutions allows c-stores to provide consumers with marketable value-added benefits. “Your customers can purchase money orders to pay landlords, cash many different types of checks, and transmit bill payments such as utilities, cell phones, mortgages and car loans” explained Great Stops’ Sutton. “And we can assist you in becoming a certified Western Union agent to provide wire transfers and money orders.”
Customers who use the Check Solutions service “have a reason to enter your store 40 or 50 times a year,” Sutton continued. When these customers cash their checks to make basic purchases for the week, chances are the retailer’s c-store will capture a share of those sales. In so
doing, he suggested, retailers can tap into “the demographic that’s most likely to spend inside the store, as opposed to a higher-end demographic that just pumps gas and leaves.”
Great Stops charges customers an average of less than 2 percent of the face amount on a locally-issued payroll check. “Setting up new customers takes only three to four minutes and includes taking their pictures,” Sutton said, “and then after that, cashing a check takes less than a minute.”
Though an average c-store will carry $40,000 in the dispenser, Check Solutions has taken steps to allay retailers’ security concerns. “The cash dispenser of the kiosk holds different denominations of currency and is identical to the technology inside of a bank ATM,” Sutton explained. “Money is safeguarded because access to the cash dispenser is tightly controlled and can be monitored from a central location.”
Each employee is authorized to cash different check amounts and check types based on their experience, and supervisors provide approvals for larger checks using remote codes. Check Solutions will train retailers in how to maintain an acceptable cash level for each store.
“Our system allows you to choose your risk-tolerance by setting up check cashing criteria particular to each store by type and amount of check,” Sutton added. “We’ll run demographic analyses for specific locations and help you decide where it makes sense to set up a check-cashing service.”
The turnkey system allows for two cashiers to operate at same time. “We install two computers and two cameras, and so we need a minimum of four linear feet,” said Sutton. A store can be outfitted with the necessary software, hardware and cabinetry for less than $50,000.
Check Solutions also provides software and hardware support, onsite installation and training, and help with compliance and banking.
Sites need high-speed Internet access and retailers pay Check Solutions an annual maintenance fee. Based local market conditions, the system allows retailers to set check cashing fees as flat rates, tiered rates or percentage rates.
“We’re selling you the knowledge of how to operate and market a check-cashing business and to integrate it with your store operations,” Sutton said. “If your c-store chain has between five and 50 locations, check cashing is a great profit center and can give you a competitive advantage.”
Consumers unable to get bank accounts aren’t the only people looking for alternative payment options. As First Data’s Jim Contardi explained, “All debit transactions are on the increase. Some customers have exhausted their credit lines and others just don’t want to add to them. Or maybe they have a bank account, but want a way to watch their spending more carefully. But they all still want the convenience of plastic payment.”
Prepaid debit cards are solutions that satisfy both desires. “The customer might buy a prepaid card to use for gas for the month—and then when the budget is used up, so be it,” Contardi said. The cards have the added advantage of allowing customers to load moderate amounts of money, whereas traditional checking accounts may require minimum balances and charges fees if balances fall below the minimum.
Though First Data’s primary business is working behind the scenes in acquiring, processing and settling transactions, said Contardi, “We also offer a turnkey solution for custom-branded prepaid cards with comprehensive administrative and cardholder support that requires no special hardware or software.”
Since PIN-based transactions cost less than credit, fuel retailers concerned about high credit cards fees can reduce those costs by encouraging their customers to use prepaid debit cards. “And if you can already accept credit or debit cards of the major associations, you’re automatically able to accept prepaid cards of the same logo,” Contardi added. “The use of a prepaid card is subject to interchange fees that are generally the same as signature debit.”
While retailers can readily market the benefits of prepaid debit cards, they should also educate customers about occasional inconveniences. “When your store preauthorizes a card for a $50 fill-up,” Contardi explained, “and the cost of the customer’s fill-up is less than that amount, the difference may be tied up for a short time if the cardholder is running a low balance.”
Consumer education, however, has a much larger upside. “A certain percentage of the population isn’t aware that prepaid debit is an option that’s as equally accepted as credit and regular debit,” said Contardi. “But once customers know about the option, it can be a draw to bring them to your locations.”