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Upping the Tempo on debit

Lauded as one of the biggest innovations in the payment industry a few years ago, decoupled debit cards have yet to gain the traction that was predicted. Now, US alternative payment network Tempo is taking a different approach by positioning them as affinity products, as Charles Davis reports.

Is the end of decoupled debit near? Or is it simply changing? One of the pioneers of the decoupled debit market, Tempo Payments, has concluded there is no inherent value in decoupled debit just for the sake of it, and instead has launched a web-based platform that enables organisations to offer affinity and co-branded debit cards.

The idea is simple, yet powerful: by combining decoupled debit with an affinity relationship, Tempo hopes to become the MBNA of debit cards, a one-shop-serves-all solution for co-branded and affinity cards that link back to the cardholder’s original checking account.

The pitch: replace your bank’s debit card with a card that provides rewards, perhaps cashback, or perhaps in the form of a percentage contribution to a charity. The cardholder feels no change whatsoever, save for those rewards now coming in.

“The programme involves what has come to be known as decoupled debit, but by linking it to affinity relationships we have discovered the inherent value in decoupled debit itself,” said Mike Grossman, CEO of Tempo.

“The value lies in the ability to offer affinity and co-branded debit cards that benefit the organisations and cardholders.”

Simplifying debit affinity

Grossman said that Tempo has built a web-based platform that simplifies debit affinity for both cardholders and new affinity partners. In a new twist, users of the Tempo system also can access the web-based platform to link the cards to a checking account.

Consumers link the cards to their existing current accounts. When they make purchases, the transactions move initially across MasterCard Worldwide’s debit network to Tempo, which switches them via the automated clearing house system and debits the consumers’ accounts. The organisations receive a share of the merchant processing fees.

The shift in Tempo’s programme represents a major change in strategy from its earlier model of encouraging large merchants to offer its cards to consumers. And Capital One, one of the few banks that had begun to test decoupled debit, recently confirmed that it had shut down the programme.

Tempo’s Grossman thinks that he has found the key to decoupled debit – the creation of the debit affinity model.

“If you think about it, you can’t really do affinity on the debit card side of the business unless you decouple,” he said.

“In the credit markets, affinity and co-branded solutions have played a huge role, but on the debit side, there is nothing that allows affinity relationships, because you have had the cardholder base tied to the checking account. But with decoupled debit, you can put an affinity card in the cardholder’s pocket, and the consumer doesn’t have to do a thing to their checking account.”

The Breast Cancer Fund, Greenpeace and the Surfrider Foundation are the first organisations to offer affinity debits cards that will generate charitable donations from cardholder purchases, but Grossman, who declined to reveal how much the organisations receive in donations from cardholder purchases, said the programme will have a “steady drumbeat of new partners” for the next few months. First Bank & Trust issues the cards while Tempo processes the transactions.

Tempo plans to offer its programme to a wide range of schools, causes and companies, which can offer incentives, such as charitable contributions in the case of non-profits, or discounts and incentives in the case of merchants or other businesses, Grossman said.

“The platform supports the same range of affinity or co-brand, non-profit or for-profit relationships as you see on the credit affinity side,” Grossman said.

“We are talking to schools, causes, associations, organisations, retailers, big businesses – it is a broad approach to affinity – we built the platform that allows us to cost-effectively support any of these programmes.”

Greater potential for affinity

Debit could vastly increase the potential for smaller affinity programmes, and so could technology, Grossman said.

“On the credit card side, the companies have not made the investment on the automation and management of new programmes that we have, so the cost of acquisition on the credit side is quite high,” he said.

“On our debit platform, the cost of signing up a new partner is extremely low, so we can conceivably offer a debit affinity programme to local organisations with dozens of members, rather than only talking to organisations with thousands of members.”

Grossman said that ultimately, the platform will allow any affinity or co-branded partner to ‘self-serve’ on the website, with no intervention required on behalf of Tempo before a programme is launched.

“That is the goal,” Grossman said. “If you can do that, then you can launch an affinity with anyone.”

The key lies in the distinction between configuration and customisation, he added.

“If you have to write a bunch of code every time you add a new partner, it is costly, so we ensured that the configuration embedded the code, so we can quickly turn things around based on preference,” he said.

“The idea is to build a payment card that is a self-service environment for both the issuer and the cardholder.”

The rise in debit card use combined with the difficulty non-profit organisations have had raising money in a turbulent economy created an opportunity for Tempo to develop an affinity debit card programme, Grossman said.

“In the grand scheme of things, you’ve still got only several thousand affinity programmes, because the cost is such that implementation requires several thousand cardholders, and that really hurts the causes that need donations,” he said.

“So now layering in debit and making it possible for a local charity to run their own affinity, we see a huge opportunity for these groups.”

Most debit cards in the United States offer nothing in the way of rewards, Grossman said, so offering the chance to earn a donation to the local animal rescue fund or food bank is a powerful incentive. The programme is also easy for customers to understand.

“We haven’t seen much customer confusion, and thus far, we have seen very high levels of customer satisfaction,” he said “It is really simple: we will replace your debit card with a debit card, still tied to you bank account, and it now will bring rewards.”