For Supervalu, a major food distributor and operator of some 500 retail stores, developing alternative electronic-payment systems has become a bottom-line issue.
If customers use credit or debit cards to make purchases, Supervalu must often pay a transaction fee that can wipe out a "razor-thin" margin on a small sale. "In some cases, the fees on one grocery order exceed $1, more than the supermarket profit on the same order," said Jacki Snyder, manager of electronic payments at Supervalu.
This example illustrates one of the problems involved with electronic payments that were outlined recently by Snyder and other financial service experts before the US House Subcommittee on Domestic and International Monetary Policy. The panel is trying to determine why electronic-payment systems are largely married to 1970s payment technology, which comes at great costs to businesses and consumers.
Wary of changing financial habits, consumers have been a major reason why new payment systems have been slow to evolve, said James Van Dyke, an analyst at Jupiter Communications. But acceptance is growing. For instance, auction sites have ushered in a new breed of financial service companies that allow buyers and sellers to exchange payments electronically, person-to-person. "This is becoming the payment method of choice," he said.
But new forms of payment also face potential legal and regulatory problems, said Thomas Vartanian, head of the e-commerce and financial services transaction practice at Fried, Frank, Harris, Shriver & Jacobson. State and federal laws govern all financial transactions. "Whose laws apply?" asked Vartanian. "How should new electronic-payment systems be protected, regulated and made safe and secure?"
While there are issues that remain unresolved in Congress and in the states, companies such as Supervalu are seeking low-cost payment alternatives. The company has introduced its own debit-card system in some stores and is investigating wireless systems where radio tags placed on products are automatically read when a customer is ready to leave a store. The customer avoids a checkout line, and the cost can be automatically deducted from a customer's account.
The major impediment to adoption of low-cost payment systems is "centred on consumer attitude and motivating consumers to change their habits," said Snyder. If they can convince consumers that these payment systems are better than those offered by the large financial institutions, "we can be successful," she said.