Most banks charge merchants a hefty fee each time a customer swipes a debit card or a credit card, averaging about 2 percent per swipe.
In 2010 the Dodd-Frank finance reform bill required those costs to accurately reflect the cost of the transactions, and set them at 21 cents per transaction plus a base percentage of up to .05 percent. Before that, the average take was 44 cents. Now it’s 24 cents per transaction. It’s still a business that has a nice profit margin, and like any such business, it’s ripe to be undermined by a competitor who can do the same thing for less.
Enter Robert Carr, president of Heartland Payment Systems, headquartered at 90 Nassau Street with a support office moving soon to 302 Carnegie Center.
Carr has a plan to create a debit “card” (linked to either a smartphone app or an actual, old-fashioned plastic card) that lets customers buy things just as they would with a normal debit card, but which charges merchants the flat, Charlie-Brown-like fee of 5 cents per transaction. He is launching the program in Princeton on Monday, September 30, under the name “One Princeton.” In addition to the low merchant fees, One Princeton comes with a charitable bonus designed to appeal to civic-minded consumers: 1 percent of the transaction goes not to big banks, but to a local nonprofit group of the customer’s choice.
That means that on transactions over $5, charities are pocketing more of the money than Carr’s company. The card (or app) is good at businesses that are members of the Princeton Merchants Association, a group that had a hand in making the One Princeton program a reality.
Any merchant in Princeton can sign up for the program as long as they agree to buy the equipment needed to scan smart phones and accept debit cards. Initially, Heartland is subsidizing the equipment. The system works by reading QR codes and cell tags to link a customer’s phone to his or her bank account. So far, about 75 shops have signed up, including McCaffrey’s supermarket.
A similar scheme was discussed in 2007. That plan was called the “Princeton One card” and it was Carr’s first attempt to create a locally oriented debit card. “We got to the point of launch and withdrew it at the last minute and didn’t do anything with it,” Carr says. The old Princeton One card was a prepaid debit card that had to be preloaded before any purchases were made.
Carr says he decided at the last minute that “we did not have the time to deal with the political issues at that time.” But in February, when the PMA came to Carr and asked him to reconsider, he thought it was worth another try. What changed? For one thing, in 2007 the iPhone was launched. In the intervening six years, the smartphone revolution has put a computer in almost everyone’s pocket. Now Carr can make an app that anyone can download that emulates a debit card. Customers using the app can take their phone to a register, where the clerk can scan the screen.
Secondly, Carr was able to tie the new One Princeton program directly to customers’ bank accounts no matter where they banked. The One Princeton program is “de-coupled” so that customers with a checking account at any bank can use it.
The launch of the re-imagined “One Princeton” program is not without its hitches, however. The “political issues” that dogged the first loyalty program resurfaced this summer. After announcing the program in July, the PMA withdrew support from the program in August after nonprofit groups objected that the customers had the ability to select which group their donations went to. Carr altered the program so that there are now two ways to donate to charity. The customer still has the option of choosing a nonprofit to send their 1 percent to. If the customer doesn’t decide, the donation goes to a common pool that is shared by all the participating nonprofits. Now, the program is launching once again with the support of the PMA.
Mark Censits, owner of the Cool Vines wine shop on Spring Street and director of the PMA, says the program is intended to bring more traffic to Princeton stores. “The goal is to try to create more traction for consumers to shop locally,” he says.
So there’s something in it for the merchants, something in it for local charities, and something in it for Carr’s company, though he says the pilot program in Princeton is heavily subsidized. For the moment, there’s also something in it for the PMA, since the One Princeton program is only good at Princeton-area businesses.
But what’s in it for the customer? Especially one with a credit card, who gets points, frequent flier miles, cash back, or other perks for paying with plastic. For example: a customer who spends $5,000 at a fancy restaurant for a rehearsal dinner would get $50 cash back for paying with a Chase Rewards card that gives 1 percent cash back. Could anything except altruism motivate that customer to pay with One Princeton instead of pocketing the 1 percent herself?
“That’s the challenge,” Carr says. “In addition to giving a 1 percent donation, a merchant might elect to give an additional discount to the customer. Also, lots of people make donations to nonprofits. They want money to go to the animal shelter, or the historical society, or the Arts Council, or HiTOPS. People make donations because they want to support organizations.”
There is one more convenience of the program for consumers. If customers go with the plastic card, they have the option of getting a card that comes with a chip embedded in it that serves the dual purpose of paying for parking, which can be pre-loaded with funds at a Princeton parking garage. However, the card is not necessary. Carr said he believes consumers already have wallets full of credit and loyalty cards and in many cases don’t want any more. The plan is for the One Princeton app to eventually incorporate the functions of those loyalty cards, possibly in a shared “pool” of loyalty points among all the participating merchants.
“The smartphone is something that people are using more and more, especially young people. They don’t even carry wallets. A lot of the time they use their smartphone for everything,” he says.
Although the program is for the most part unprecedented, Carr says he has had some success with payment systems on college campuses. The OneCard is a system much like the original Princeton One Card was envisioned, except it was implemented at college campuses around the country. Students can use their ID cards, linked to cash-loaded accounts, to open transit turnstiles, pay library fees, and access almost every campus service at colleges such as Hunter, Smith, and Babson.
According to Carr, there has never been a program quite like One Princeton in the history of business. Most other loyalty programs come at a cost to the merchant. “With the One Princeton program, businesses will save money unless they decide to pass that savings along to customers in the form of an additional discount,” he says.
One Princeton is not the only Princeton-based app set to launch this month. A startup company, Repunch, plans to make its own cell phone-based loyalty program any day now (see story, page 35). Andrew Tervooren says Repunch will be available to the public in a matter of days or weeks.
Although Repunch is a loyalty card replacement rather than a payment system, it shares the common goal of encouraging local shopping. Carr says he knew about Repunch and tried to contact its founders to potentially work together, but didn’t hear back from them.
The timing may not be a coincidence. Censits says it wasn’t until Repunch appeared on the scene that Heartland geared up with its own program. However, Censits doesn’t see the two as rivals, at least initially. “We don’t really see the two as competing other than for the attention of merchants,” he says.
The fact that the One Princeton program is so community-oriented fits in with Carr’s long-standing credentials as a Princeton booster. Carr has lived in Princeton since 1992 (currently in a home on Library Place that once belonged to Woodrow Wilson) and is involved in a number of community organizations, including the Historical Society of Princeton and the Historic Morven. He is also the founder of the Give Something Back foundation, which provides scholarships to disadvantaged children.
Carr grew up in Illinois, the son of a waitress and a security guard. He graduated from the University of Illinois in 1967 with a master’s degree in computer science, and went on to start his own business in 1972. He was a consultant and software developer for much of his career. When PCs caught on in the 1980s, Carr focused on developing software for them, and began specializing in electronic payments in 1986. The company he co-founded, Heartland Payment Systems, merged with Heartland Bank in 1997. He is still president of Heartland Payment Systems.
His company is a growing force in the payment industry, managing about 11 million transactions a day, and annual revenues of about $2.25 billion a year. That kind of size and clout is part of why Carr thinks his program has a chance to be successful.
“We’re subsidizing it, there’s no question about it,” he says. “But we’re willing to do that. We think it’s a great community service.”
Censits says it’s too early to say if the One Princeton program will work, but “I love the idea that there are companies out there trying this kind of stuff. It’s one of the things that makes Princeton a great place to have a business.”