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May 2nd, 2016

Retailers generate customer loyalty with price discounts tied to ACH payments, growing in-store basket size and gaining a leg up on competition.

​By Jerry Soverinsky

The average fuel customer will drive 10 minutes out of their way to save two cents per gallon on gas, according to the 2015 NACS Fuels Report. For those with a car similar to this writer’s mid-size SUV, that’s exactly a 12-cent savings on a complete fill-up. Or in terms that any five-year-old can understand: enough to buy absolutely nothing inside the station’s convenience store.

Imagine, then, the appeal to drivers of offering a nickel or dime savings per gallon—without any strings attached. That is, they don’t have to pay with cash (somewhat burdensome, especially when gas prices rise), and they don’t have to load up on groceries at a nearby store. Just gas and go, if they choose. All while paying with the convenience of a bank card.

It’s all possible with ACH payments.
You’re familiar, of course, with ACH and its value proposition. While credit and debit cards are associated with punitive interchange fees, an ACH payment incurs less than a one-cent charge per transaction, a minuscule cost of business that is easily absorbed. And with that hefty interchange savings, you’re able to pass on a generous fuel discount—five, eight, maybe even 12 cents per gallon—to your customers, a formidable enticement that can attract customers well beyond a 10-minute driving detour.

“Some industry leaders have already begun doing private label ACH and they’ve been very successful,” said Gray Taylor, executive director of technology standards group Conexxus and payment consultant to NACS. “A few [retailers] are even doing more transactions with ACH than with MasterCard.”

With $10 billion of industry money going to interchange fees in 2015, according to NACS State of the Industry data, that MasterCard tradeoff is substantial and may eventually sway the majority of retailers to adopt ACH.

But the cost savings is just a starting point, Taylor said. The strategic operator will look at ACH and its long-term opportunities, leveraging the power of fuel discounts as they build customer loyalty and even per-customer basket size inside the store.

“The interchange is just the start—step one,” Taylor said. “Eventually, most retailers will be offering this, so fuel discounts will be the norm, rather than the exception.” In which case, “the most successful use of ACH is to leverage it to build a loyalty program, and build your brand.” Something a few early adopters have already begun doing. Let’s take a closer look.

How It Works
Used as a decoupled debit card, an ACH payment program withdraws funds directly from a customer’s bank account, a straightforward transaction that eliminates the interchange process and its fees. Using that simple dynamic, ZipLine, provider of mobile and card-based decoupled debit ACH transactions to the convenience and fuel retailing industry, created a comprehensive payment program for retailers, providing them with store-branded cards for their customers, which function exactly like traditional debit cards when presented at the store for payment. “The card is branded specific to the merchant and works at the pump like any other card,” said Stephen Goodrich, CEO of ZipLine. “The card is more secure than a credit card, as the transaction is PIN-based ... And it can work at other sites if the merchant allows that.”

Goodrich said that there are no charge-backs or non-sufficient funds—another cost savings to the retailer. Additionally, the company provides a merchant portal that allows real-time access to program information and reporting, including comprehensive data about enrollments, spending history and frequency, funds settlements and inactive or dormant accounts. Multistore operators can view store-level transaction counts as well as generate custom reports that tap into multiple usage metrics.

“As we refined our product [over the past several years], the upside for the merchant has not just been an interchange fee savings,” Goodrich said. “That’s not the model. The model is leveraging those savings on credit card fees into real-time consumer discounts, using a price roll-back at the pump. Those customers then become highly sticky.”

How sticky? That depends on the discount and marketing support. “The retailer dictates how much of the savings goes toward the customer reward,” he said. “We’ve learned that the effective merchant play is not pocketing the savings but passing it on to the customers who can deliver a [measurable] sales lift … However, our most successful merchants aren’t necessarily offering the highest discount. There’s a marketing component to this, too.”

ZipLine’s program integrates seamlessly with several mobile platforms, allowing users to pay with a smartphone—much as they’ve become accustomed to with other robust mobile payment applications, such as Starbucks.

Down on the Farm
Count Cumberland Farms as an early adopter and believer in the power of ACH. In January 2013, the company launched its SmartPay ACH payment program, providing its fuel customers with a 10-cents-per-gallon savings. Less than three years later, the company announced that it had sold $1 billion of gas through its program, saving its customers more than $33 million on gas.

“Two years ago, SmartPay was an entirely new concept, so it’s incredible to see that we have already hit the $1 billion mark in terms of sales through the program,” said Dave Banks, Cumberland Farms’ chief information officer, in announcing the sales milestone. “We’re seeing thousands of new customers join SmartPay every week, most of which are from word-of-mouth referrals by existing customers.”

Building on the success of SmartPay, Cumberland Farms extended its business model and brand to SmartPay Business in 2014, which also passes along a 10-cents-per-gallon savings to its business customers and their vehicle fleets.

Young Maverik
Salt Lake City-based Maverik has also achieved rapid ACH success and growth. With its popular Adventure Club loyalty program firmly entrenched at its 274 western state stores, the independent fuel marketer had engaged a relatively active customer base, rewarding them with outdoor-themed prizes and rewards benefits.

More than half a million active Adventure Club members were passionate Maverik customers, a loyalty that the company felt would be amenable to an ACH payments program. “We wanted to get into ACH and save money on interchange fees but also provide a benefit to our customers who are very loyal and price sensitive,” said Ernie Harker, marketing and brand director for Maverik. “It can be difficult to show love to customers who love you the most; this is a way to do that. We decided to give them a discount that would be exclusive to our new ACH program.”

Enter the Nitro ACH debit card, which is tied directly to Maverik’s Adventure Club loyalty program and offers a 6-cents-per-gallon discount for gasoline. Launched in 2013, the program now totals nearly 80,000 Nitro cardholders, Harker said—phenomenal growth that also helped expand its Adventure Club membership to more than 700,000 people. “So 10% of our Adventure Club cardholders are Nitro cardholders, which means there is room for us to grow.”

For Maverik customers, the Nitro card presents immediate price rollback savings at the pump as soon as the card is swiped. The company also presents a low price guarantee, which matches the gasoline price of any lower-priced competitors. In addition to providing generous fuel discounts to Nitro cardholders, Maverik also compensates them with exclusive rewards and events. “We offer them our $1 fountain drink promotion year-round (compared to summer only for Nitro-less Adventure Club members),” Harker said. “And just this week we are renting a movie theater and offering free tickets to our Nitro cardholders.”

Taylor said promotions such as those are essential for maximizing the opportunities that an ACH program presents. “The cost savings is just table stakes, it’s the company culture that then converts those cardholders to loyal cardholders.”

That’s the precise, if somewhat surprising, path that Maverik’s ACH program has taken. Harker said an unexpected consequence of launching its ACH program has been a more loyal customer base, one that also spends more inside its stores. “We find that Nitro card users buy more of their fuel from us than our competitors,” he said. “And basket size is larger, too,” a result that Harker attributed to its fuel discount. “There’s a sense that they’re saving a little more in general so there’s permission to spend more.”

What’s the Catch?
It all seems like such a simple proposition: Save on interchange fees. Pass along savings to your customer. Build your brand. So why aren’t more retailers doing it?

“As for why other retailers haven’t gotten on board, I really don’t know,” said Chris Suess, Shell’s general manager for payments for North America, to, whose company’s decoupled debit card has been tied to a two-cents-per-gallon discount of gasoline since 2008. “We’ve seen very consistent spending patterns on our [card].”

ZipLine’s Goodrich said with the success of Shell, Maverik and others adopting ACH decoupled debit cards, other retailers will be forced to adopt them, or face a competitive disadvantage. “Eventually, this is a payment type that you’ll see on every corner,” he said.

Taylor agrees, though he said early adopters may be especially poised for success. “If everybody has it, you’re no longer differentiated,” he said. “But if you get in there early, you can build brand reach and a loyalty relationship with your customers.”

Jerry Soverinsky is a Chicago-based freelance writer. He’s also a NACS Magazine contributing writer.