Peter Guidi's Blog

Competing for Method of Payment: Recapitalizing Interchange into Rewards Programming.

In alternative payment, credit card, debit card, interchange, payment, Uncategorized on October 15, 2009 at 8:34 pm

When a retailer competes for their consumer’s method of payment (MOP), rewards must be used to motivate the desired behavior. The question: are incentives for payment the same as rewards for purchase and are the results similar? Another question might be; if a retailer is able to recapitalize interchange fees into rewards programming does that represent ROI?

A typical 30 location convenience petroleum retailer spends in the area of $1 million dollars per year on interchange fees. If that retailer captures 10% of that business by re-purposing interchange fees as rewards what is the result of this investment? First the retailer has reduced their interchange expense, but where is the ROI? ROI comes in the same way retailers experience ROI from a loyalty program, frequency and lift. Using incentives, such as gas discounting, to motivate alternative payment will initiate a “loyalty” response.  In other words, these consumers will frequent the store more often and they will purchase more gas with each stop. 

Competing for the consumers MOP requires that the retailer provide an “incentive” for “payment method”, rather than a “reward” for “purchasing “decisions. The consumer’s responses to the programs are similar because both induce loyalty. When competing for the consumers’ MOP the budget to fund the incentive comes from the recapitalization of the Interchange Fees, while the rewards for traditional loyalty programs comes from the retailers gross margin. (

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