Franchisees Turn to Store-Issued Smart Cards

For years, retailers have sought ways to allow their customers to pay electronically while bypassing bank networks and fees. Now some fast-food franchisees are turning to proprietary smart cards–with or without interest from their corporate parents. Los Angeles-based TranStar Systems Inc. has either installed or has orders for systems in 100 stores, mostly fast-food outlets.

But Mike Radlovic, TranStar’s chief executive, is hoping a pilot about to begin in a Manhattan Little Caesars pizza outlet could really move things along. The high-volume location has foot traffic of 600,000 persons a day and is part of a franchise that owns 100 stores in the New York region. Also, a franchisee with six Subway stores in California is testing the program.

Radlovic says franchisees are an easier sale than the corporate offices because “they usually have an immediate need for these programs.” Relying on VeriFone 3750 terminals and a variety of different smart cards, retailers use the system for both prepaid gift-card-style payments as well as loyalty programs. The franchisees decide how they want to administer the loyalty program. Subway, for example, is accumulating points toward free items while Little Caesars is giving discounts.

While mag-stripe cards are being used by a number of retailers for similar applications, Radlovic argues the biggest advantage of the smart card is the savings in transaction processing, which he says comes to as much as 80% for high-traffic locations. “While mag-stripes work fine for some retailers, for those with a lot of transactions it can be very expensive,” he says. With mag-striped cards, an outlet often has to call into a central database to complete each transaction.

With smart cards, the card is read at the point-of-sale and all transaction data are downloaded at the end of the day, he says. With the reduced transaction cost, participating merchants hope to see a payback over time against TranStar’s flat monthly fee and the cost of the cards.