Heartland's Decoupled Debit Card Taps Local Appeal
Heartland Payment Systems, the fifth largest U.S. payments processor, launched a decoupled debit card aimed at a local market that could become a significantly disruptive force in similar markets nationwide.
About 60 local merchants and non-profit organizations in Princeton, N.J., have affiliated with the One Princeton card, a decoupled debit card experiment Heartland is offering with the support of the Princeton Merchants Association.
Heartland is headquartered in Princeton.
The One Princeton card may be the first decoupled debit card in the country to bring a local market focus and charitable purpose into its value equation, according to the president of the Princeton Merchants Association. This focus, combined with lowered costs, could make the idea popular elsewhere.
“We see the card as playing a role in our broader community mission,” said Carly Myer, president of the PMA and vice president for retail administration at the Bank of Princeton, a PMA member.
Myer acknowledged the card could be seen as a competing with credit and debit cards, but said the bank tried to look past interchange income when evaluating the card.
“Using the card helps our local merchants, who might be our local depositors or business loan borrowers, as well as area charities,” Myer said, calling the card a win-win-win development.
Decoupled debit cards allow cardholders to access funds from their checking accounts through the ACH system, using an electronic check instead of debit or credit card systems. The cards were launched as a way for merchants to avoid paying interchange fees, but so far, they have not become as popular as branded debit cards.
Decoupled debit cards have been offered by some financial institutions, such as Capitol One, and also by companies and merchants such as oil companies and gasoline retailers that offer discounts for purchases made with the cards.
Compared to standard debit card interchange, which can run 2.0 to 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 just 5 cents.
One percent of the interchange fee is donated to a local charity of the cardholder’s choice, adding to the card’s appeal.
However, the One Princeton card still faces obstacles that could limit its appeal to consumers, acknowledged Robert Baldwin, vice chairman of Heartland’s board of directors, who also currently serves as the firm’s interim CFO.
For example, while One Princeton cardholders will be able to view transactions on the card’s website, something not all decoupled debit cards have been able to do, the transactions could take more than 24 hours to be recorded on a cardholder’s checking account ledger.
Consumer advocates have attacked decoupled debit cards for the weakness in particular, arguing the cards make it easier to overdraw a checking account. But Baldwin pointed out that financial institutions have chosen not to decline debit transactions, whether to avoid embarrassing cardholders or to increase income. So as a practical matter, he said, a consumer could use overdraw his or her checking account with either type of card.
Baldwin also said the local nature of the One Princeton card means Heartland has not had to develop a charge back or dispute resolution mechanism.
‘These are local Princeton cards, carried by Princeton residents and customers who use them to shop at Princeton businesses and support Princeton charities,” said. “If there is a dispute between a 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 dispute resolution system.”
But even without such a system, Baldwin said the One Princeton card was more than a gift from the processor to its hometown. While Heartland might not make a lot of money from the program, Baldwin said the company hoped it could introduce area merchants to the company and lead them to Heartland’s other processing services.
“We want to be the leading processing choice for all card transactions,” he said.