Tempo Boosts Decoupled Debit With New Technology, New Issuer

Making good on a promise last spring that new developments were in the works, specialty debit processor Tempo Payments Inc. on Monday unveiled a new software-as-a-service platform and three MasterCard-branded decoupled debit card programs. Issued by First Bank & Trust, the cards are the first Tempo-affiliated cards issued by a bank other than HSBC since Tempo and HSBC struck up a partnership in 2006. The new affinity card programs will generate charitable donations for Breast Cancer Fund, Greenpeace, and Surfrider Foundation. The amount of each transaction that will go into the coffers of those groups was not immediately available. More such deals are in the works, both of the affinity kind for non-profits and of the cobranded variety for for-profit companies, according to Mike Grossman, chief executive of San Mateo, Calif.-based Tempo. Rewards for private-sector merchants could include cash back or discounts on gasoline, he says. Grossman notes that affinity and cobranded cards are very common in the credit card world, but in debit, which lacks interest income to help fund rewards, affinity/cobranded cards are rare. “Nothing comparable has ever existed in the debit space, and the reason is that it [hasn't been] viable,” he says. Tempo believes it's found the formula to make debit rewards cards rewarding for issuers, sponsors, and processors. “The microeconomics of affinity debit are definitely tighter than the microeconomics of affinity credit, but they work,” he says. And one reason they could work now is Tempo's new Web-based software-as-a-service technology platform that Grossman says reduces startup and operating expenses. The system enables organizations or companies to help design their own programs, and it also enables managers to offer electronic applications to group members and give cardholders the ability to manage their accounts online. “For one thing, paper has been taken out of the equation,” says Grossman. “There's a tremendous emphasis on everything electronic.” Tempo spent “many millions of dollars” developing the system, according to Grossman. A Tempo executive speaking at the NACHA Payments conference last April indicated that Tempo would have a new product soon based on decoupled debit (Digital Transactions News, April 9). With decoupled debit, the card issuer does not hold the cardholder's demand-deposit account. Instead, the issuer approves the transaction, which generates normal debit card interchange based on applicable MasterCard or Visa rates, and then initiates an automated clearing house debit against the cardholder's linked checking account. Capital One Financial Corp. started testing the concept in 2007 but quietly ended the tests without ever rolling it out. The big credit card issuer never explained why publicly, but payments executives concluded Cap One couldn't make a sufficient profit (Digital Transactions News, May 8). Capital One's exit left HSBC and Tempo as decoupled debit's main champions. Some of their first target clients were the merchants that use HSBC Retail Services to offer private-label credit cards to their customers. HSBC, which along with two venture-capital firms in 2006 invested $8.7 million into Tempo (then known as Debitman Card Inc.), has issued an undisclosed number of decoupled debit cards in partnership with Tempo under HSBC's OptiPay program. But for the open-loop debit cards using its new technology, Tempo sought out a new issuer. Tempo will have more control of the programs with the platform, according to Grossman. Under the HSBC programs, “our role is more constrained,” he says. Tempo did not initiate a formal request-for-proposals process to find an issuer but instead talked to about a dozen banks before settling on Brookings, S.D.-based First Bank & Trust, which Grossman says has a good combination of rigor in its business dealings and entrepreneurialism. Tempo handles risk management, application processing, card issuance, authorization, and settlement. First Bank & Trust, whose parent company is Brookings-based Fishback Financial Corp., isn't a stranger to new payments ventures. In 2007, the bank became an issuer for GratisCard Inc., now known as Revolution Money, a startup offering a low-interchange PIN-based card aimed at merchants tired of paying high Visa and MasterCard interchange rates (Digital Transactions News, March 14, 2007). A First Bank executive couldn't be reached for comment Monday. In a news release, bank president Kevin Tetzlaff said, “Tempo's affinity debit card platform will spur a broad range of new debit card options for consumers. We are always looking for new, innovative ways to enhance our business and we are very excited about our partnership with Tempo.” The existing HSBC cards will continue, according to Grossman and an HSBC spokesperson. “HSBC remains committed to supporting its current merchant relationships in the decoupled debit space,” the spokesperson says. “HSBC continues to work with Tempo on some processes associated with HSBC's OptiPay platform.” Fishback Financial has only $1.6 billion in assets. Consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign says more small banks should take advantage of the opportunities in debit that changing technology and consumer preferences present. “I continue to be puzzled by the willingness of small banks and credit unions to sit on their hands amidst all the potential for innovations in card payments,” he says. “There are lots of opportunities to do lots of things in cards that the large banks aren't providing. I just think they have been whipped into submission for so long by the big banks and the card associations that they are willing to settle for the crumbs that fall off the table.” The new Debit MasterCard cards for Greenpeace, Breast Cancer Fund, and Surfrider Foundation (the last is an organization devoted to protecting beaches from pollution and natural environmental threats) have PIN-debit utility through MasterCard's Maestro network and ATM usability through MasterCard's Cirrus network. The cards themselves will be made from PETG, a more environmentally friendly plastic than the PVC cards that dominate the industry.