HeartlandPayment Systems, the fifth largest U.S. payments processor,launched a decoupled debit card aimed at a local market that couldbecome a significantly disruptive force in similar marketsnationwide.

About 60 local merchants and non-profit organizations inPrinceton, N.J., have affiliated with the One Princeton card, a decoupleddebit card experiment Heartland is offering with the support of thePrinceton Merchants Association.

Heartland is headquartered in Princeton.

The One Princeton card may be the first decoupled debit card inthe country to bring a local market focus and charitable purposeinto its value equation, according to the president of thePrinceton Merchants Association. This focus, combined with loweredcosts, could make the idea popular elsewhere.

“We see the card as playing a role in our broader communitymission,” said Carly Myer, president of the PMA and vice presidentfor retail administration at the Bank of Princeton, a PMAmember.

Myer acknowledged the card could be seen as a competing withcredit and debit cards, but said the bank tried to look pastinterchange income when evaluating the card.

“Using the card helps our local merchants, who might be ourlocal depositors or business loan borrowers, as well as areacharities,” Myer said, calling the card a win-win-windevelopment.

Decoupled debit cards allow cardholders to access funds fromtheir checking accounts through the ACH system, using an electroniccheck instead of debit or credit card systems. The cards werelaunched as a way for merchants to avoid paying interchangefees, but so far, they have not become as popular as branded debitcards.

Decoupled debit cards have been offered by some financialinstitutions, such as Capitol One, and also by companies andmerchants such as oil companies and gasoline retailers that offerdiscounts for purchases made with the cards.

Compared to standard debit card interchange, which can run 2.0to 2.5% of each purchase with an additional flat fee of 24 cents,the One Princeton card costs merchants 1.5% with a flat fee of just5 cents.

One percent of the interchange fee is donated to a local charityof the cardholder's choice, adding to the card's appeal.

However, the One Princeton card still faces obstacles that couldlimit its appeal to consumers, acknowledged Robert Baldwin, vicechairman of Heartland's board of directors, who also currentlyserves as the firm's interim CFO.

For example, while One Princeton cardholders will be able toview transactions on the card's website, something not alldecoupled debit cards have been able to do, the transactions couldtake more than 24 hours to be recorded on a cardholder's checkingaccount ledger.

Consumer advocates have attacked decoupled debit cards for theweakness in particular, arguing the cards make it easier tooverdraw a checking account. But Baldwin pointed out that financialinstitutions have chosen not to decline debit transactions, whetherto avoid embarrassing cardholders or to increase income. So as apractical matter, he said, a consumer could use overdraw his or herchecking account with either type of card.

Baldwin also said the local nature of the One Princeton cardmeans Heartland has not had to develop a charge back or disputeresolution mechanism.

'These are local Princeton cards, carried by Princeton residentsand customers who use them to shop at Princeton businesses andsupport Princeton charities,” said. “If there is a dispute betweena shop and a customer, they will be able to resolve it right there,face to face. We haven't had to come up with a formal disputeresolution system.”

But even without such a system, Baldwin said the One Princetoncard was more than a gift from the processor to its hometown. WhileHeartland might not make a lot of money from the program, Baldwinsaid the company hoped it could introduce area merchants to thecompany and lead them to Heartland's other processing services.

“We want to be the leading processing choice for all cardtransactions,” he said.