Peter Guidi's Blog

Archive for December, 2009|Monthly archive page

Understanding the ROI of Merchant Funded Rewards: Is a price roll-back a margin killer or profit generator?

In alternative payment, credit card, debit card, interchange, loyalty, payment, Payment card, Uncategorized on December 16, 2009 at 8:40 pm

Merchant funded rewards drive significant increases in key metrics across the full customer lifecycle.  Merchant driven programs can drive a substantial return by delivering significant increases in key metrics from consumer acquisition to engagement and retention driving higher customer lifetime value.

Convenience/Petroleum retailers are well positioned to leverage merchant funded reward programs based on price roll back and funded through the allotment of interchange fees to consumer rewards through the introduction of alternative payment. ROI from these programs comes almost exclusively from the value members see in the program. Numerous studies demonstrate that consumers will make decisions on where to shop for gas with just a few cents of difference. Funding price discounts on gas with no offsetting savings represents a significant percentage of margins, making these types of programs expensive and difficult to maintain. The introduction of alternative ACH payment to this schema allows the retailer to influence both the consumer’s purchasing and payment decisions when choosing price roll back that is based on payment type. The ROI is generated because the program drives up all key metrics. The result is that the retailer sells more gallons to the group of consumers in the program. Results indicate that 20% of the consumers engaged in this type of program will double the number of gallons purchased from the retailer. With effective implementation and ongoing execution of the program, Merchants can expect to see meaningful increases both in gross sales and margin as a result of merchant funded rewards based on price roll back at the pump. (

Passing on the savings: Do lower interchange fees mean lower retailer prices for the consumer?

In alternative payment, credit card, debit card, interchange, payment, Payment card, Uncategorized on December 9, 2009 at 7:49 pm

Oscar Wilde once said “There are many things that we would throw away if we were not afraid that others might pick them up”. The same may be true of interchange fees and margins.

This month the Competitive Enterprise Institute (CEI) published a report called “Payment Card Networks under Assault” which makes the case that capping interchange fees will hurt consumers, charities, community banks and credit unions. One of their primary claims is that retailers would not pass on savings from lower interchange fees to consumers. The CEI points to the GAO report which concluded that “consumers may not experience lower prices and retailers could pocket the entire windfall resulting from any reduction in interchange fees”.  Meanwhile, the Consumers for Competitive Choice (C4CC) called for interchange fee reform stating that reform would spur job growth, and as expressed by one President of a 90 store chain who is paying nearly 3.5 million dollars in interchange fees saying: “lower fees would mean lower costs for consumers”.

 Would a retailer pass on savings to consumers if interchange fees where lowered? Here’s another question: Will retailers use discounts to compete with credit card companies for the consumer’s method of payment? And if they do, what methods are available; price roll back for ACH or cash credit pricing? As the ball goes back and forth on this issue, both sides need to be cognizant that Congress is looking for solutions that benefit the consumer. Unless the retailers can demonstrate that they are willing to provide lower retail prices to consumers for less expensive forms of payment, why should Congress believe that consumers will benefit from a cap on interchange fees?  (