Use Your Driver's License as a Debit Card

BusinessWeek Online | May 16, 2007
By Kerry Miller

Aurora Bisig is a big believer in retailer discount cards. At her last count, she had a dozen—from Sam's Club (WMT) to nearly every grocery store in Central Texas. So this March, when the Austin (Tex.) insurance agent pulled into a gas station for a fill-up and saw a sign promising an additional 10¢ off per gallon for signing up with a new e-payment program, she was interested. 

She was also pleased to learn that the "RollbackPrice" program wouldn't require her to add another piece of plastic to her overstuffed wallet. Instead, after entering her driver's license number and bank account information online with a two-year-old company called National Payment Card (NPC), she'd be able to pay for gas just by swiping her driver's license (linked directly, via the existing magnetic stripe, to her bank account), and entering a personal identification number.

Gas-station owners are pleased with the program too. Because NPC processes the payment as an e-check with the Automated Clearing House (ACH), a network most commonly used for direct deposits, participating retailers bypass credit card companies such as Visa and Mastercard (MA)—and their processing fees (see, 3/13/07, "Steve Case Takes On the Credit Card Giants").

Cutting Down on Interchange Fees

Also known as interchange fees, these charges add up to more than small change for gas station owners now that the average price of gas is over $3 a gallon. In fact, last year, the National Association of Convenience Stores (NACS) reported that such stores' credit card fees surged 22% to reach $6.6 billion, making it the industry's second-largest expense—and exceeding the industry's overall profits for the first time ever.

NPC started piloting the patent-pending technology at a handful of gas stations in Texas this January. Since then the company has signed contracts to roll out the system to five regional convenience store chains starting in June. Although only 24 states currently issue licenses with magnetic stripes, NPC can also add e-payment functionality to a chain's existing loyalty cards. One of the first contracts NPC signed was with Flash Foods, a convenience-store chain based in Georgia, a state that doesn't have magnetic-stripe licenses. By 2010, NPC Chief Executive Officer Joe Randazza expects the system will be in place at more than 36,000 locations.

While a $36 traditional credit card purchase could cost a gas station around 86 cents (or more, if it's a rewards card), NPC charges a flat 15¢ fee for each transaction it processes. That means that retailers using NPC's system can afford to pass along an instant discount to customers—creating what's in essence a self-funded loyalty program—while still coming out ahead. Randazza estimates his eight-person company, based in Boca Raton, Fla., will be in the black by late 2008 (see, 5/10/07, "The Problem with Loyalty Programs").

Focusing On Gas Stations

Guy Oliver of MTG Management, which manages three of the Texas gas stations where the NPC system is being piloted, says he's pleased to have some control over his spiraling credit card processing costs. "With Visa and Mastercard, there doesn't seem to be any relief in sight," he says. "We pay more in interchange fees than we do for freight to get the gas to the stations."

Randazza says the technology has applications in other industries, but for now the company is focusing on gas stations and convenience stores, where already-slim profit margins have been particularly hard hit by rising credit card interchange fees (see, 11/17/03, "The Virtually Cashless Society," and 5/1/03, "Big Plastic's Costly Losing Hand").

Another reason for the current focus: It's one of the only markets price-sensitive enough that a few pennies off can count as a serious incentive for consumers.

Based on the reactions she's heard from friends and colleagues in Texas, Bisig says it might take some time to convince people that sharing their license number and bank account information with a retailer is safe—especially shoppers who aren't familiar with other e-payment systems like PayPal (see, 5/23/05, "PayPal Spreads Its Wings").

Fear of Fraud a Factor

In Texas, a spokeswoman for the state's Public Safety Dept. issued a statement advising that consumers use caution when providing any retailer with their driver's license number, and emphasized that DPS does not endorse National Payment Card or any other programs that piggyback on state-issued drivers' licenses.

National Payment Card, for its part, says its stringent security measures make the likelihood of fraud or identity theft very low. Customers' financial information is not stored anywhere on the actual license, and withdrawals are not permitted after more than three failed PIN attempts. The system also sets a maximum weekly limit of $300 in withdrawals, though Randazza says in the case of fraud, customers would only be responsible for the first $50 of that.

Bisig, for one, was satisfied with the system's security precautions. Because her license is PIN-protected, she points out, it's even more secure than using a credit card. While some of her friends have worries about giving out too much of their personal information to a retailer, she reasons, "People give out that much information and more whenever they buy something on the Internet."

Bisig says her biggest complaint is that she can't use her license to pay at more retailers and still has to carry individual loyalty cards for each one. "I wish they could all do it," she says. "It would be so much easier."