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Sales & Marketing = May 15, 2007, 2:41PM EST

Use Your Driver's License as a Debit Card

A startup promises to save both drivers and gas station = owners a=20 bundle at the pump by cutting credit cards out of the payment process =

by Kerry = Miller

How interchange fees work Source:=20 GAO

A two-year-old company called National Payment Card allows customers = to pay=20 for gas by swiping their driver's license and entering a PIN

Participating retailers choose how much of a discount to give their = customers=20

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Aurora Bisig is a big believer in retailer discount cards. At her = last count,=20 she had a dozen=E2=80=94from Sam's Club (WMT) to nearly every grocery store in Central Texas. So = this=20 March, when the Austin (Tex.) insurance agent pulled into a gas station = for a=20 fill-up and saw a sign promising an additional 10=C2=A2 off per gallon = for signing up=20 with a new e-payment program, she was interested.

She was also pleased to learn that the "RollbackPrice" program = wouldn't=20 require her to add another piece of plastic to her overstuffed wallet. = Instead,=20 after entering her driver's license number and bank account information = online=20 with a two-year-old company called National Payment Card (NPC), she'd be = able to=20 pay for gas just by swiping her driver's license (linked directly, via = the=20 existing magnetic stripe, to her bank account), and entering a personal=20 identification number.

Gas-station owners are pleased with the program too. Because NPC = processes=20 the payment as an e-check with the Automated Clearing House (ACH), a = network=20 most commonly used for direct deposits, participating retailers bypass = credit=20 card companies such as Visa and Mastercard (MA)=E2=80=94and their=20 processing fees (see BusinessWeek.com, 3/13/07, "Steve=20 Case Takes On the Credit Card Giants").

Cutting Down on Interchange Fees

Also known as interchange fees, these charges add up to more than = small=20 change for gas station owners now that the average price of gas is over = $3 a=20 gallon. In fact, last year, the National Association of Convenience = Stores=20 (NACS) reported that such stores' credit card fees surged 22% to reach = $6.6=20 billion, making it the industry's second-largest expense=E2=80=94and = exceeding the=20 industry's overall profits for the first time ever.

NPC started piloting the patent-pending technology at a handful of = gas=20 stations in Texas this January. Since then the company has signed = contracts to=20 roll out the system to five regional convenience store chains starting = in June.=20 Although only 24 states currently issue licenses with magnetic stripes, = NPC can=20 also add e-payment functionality to a chain's existing loyalty cards. = One of the=20 first contracts NPC signed was with Flash Foods, a convenience-store = chain based=20 in Georgia, a state that doesn't have magnetic-stripe licenses. By 2010, = NPC=20 Chief Executive Officer Joe Randazza expects the system will be in place = at more=20 than 36,000 locations.

While a $36 traditional credit card purchase could cost a gas station = around=20 86 cents (or more, if it's a rewards card), NPC charges a flat 15=C2=A2 = fee for each=20 transaction it processes. That means that retailers using NPC's system = can=20 afford to pass along an instant discount to customers=E2=80=94creating = what's in essence=20 a self-funded loyalty program=E2=80=94while still coming out ahead. = Randazza estimates=20 his eight-person company, based in Boca Raton, Fla., will be in the = black by=20 late 2008 (see BusinessWeek.com, 5/10/07, "The=20 Problem with Loyalty Programs").

Focusing On Gas Stations

Guy Oliver of MTG Management, which manages three of the Texas gas = stations=20 where the NPC system is being piloted, says he's pleased to have some = control=20 over his spiraling credit card processing costs. "With Visa and = Mastercard,=20 there doesn't seem to be any relief in sight," he says. "We pay more in=20 interchange fees than we do for freight to get the gas to the stations." =

Randazza says the technology has applications in other industries, = but for=20 now the company is focusing on gas stations and convenience stores, = where=20 already-slim profit margins have been particularly hard hit by rising = credit=20 card interchange fees (see BusinessWeek.com, 11/17/03, "The=20 Virtually Cashless Society," and 5/1/03, "Big=20 Plastic's Costly Losing Hand").

Another reason for the current focus: It's one of the only markets=20 price-sensitive enough that a few pennies off can count as a serious = incentive=20 for consumers.

Based on the reactions she's heard from friends and colleagues in = Texas,=20 Bisig says it might take some time to convince people that sharing their = license=20 number and bank account information with a retailer is = safe=E2=80=94especially shoppers=20 who aren't familiar with other e-payment systems like PayPal (see=20 BusinessWeek.com, 5/23/05, "PayPal=20 Spreads Its Wings").

Fear of Fraud a Factor

In Texas, a spokeswoman for the state's Public Safety Dept. issued a=20 statement advising that consumers use caution when providing any = retailer with=20 their driver's license number, and emphasized that DPS does not endorse = National=20 Payment Card or any other programs that piggyback on state-issued = drivers'=20 licenses.

National Payment Card, for its part, says its stringent security = measures=20 make the likelihood of fraud or identity theft very low. Customers' = financial=20 information is not stored anywhere on the actual license, and = withdrawals are=20 not permitted after more than three failed PIN attempts. The system also = sets a=20 maximum weekly limit of $300 in withdrawals, though Randazza says in the = case of=20 fraud, customers would only be responsible for the first $50 of that. =

Bisig, for one, was satisfied with the system's security precautions. = Because=20 her license is PIN-protected, she points out, it's even more secure than = using a=20 credit card. While some of her friends have worries about giving out too = much of=20 their personal information to a retailer, she reasons, "People give out = that=20 much information and more whenever they buy something on the Internet." =

Bisig says her biggest complaint is that she can't use her license to = pay at=20 more retailers and still has to carry individual loyalty cards for each = one. "I=20 wish they could all do it," she says. "It would be so much easier." =

Miller is a reporter with BusinessWeek.com in New = York.=20

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