November 19, 2004

Convenience Chain CIO: Payment Systems Bleeding Stores Dry

By Evan Schuman, eWEEK

Wawa CIO Neil McCarthy's voice reveals his anger as he recounts a recent meeting he had with bank executives to complain about high credit card fees that are out of proportion with services.

Wawa's 550 stores sell a huge amount of gasoline: about 110,000 gallons per week per store, which places it among the highest volume in the country. Typical volume for U.S. gas stations is about 40,000 gallons, McCarthy said.

Soaring gas prices have doubled the typical fuel bill, meaning that the same gallons of gas are being pumped and sold, but the credit card company is taking double the money.

"'You're killing us with these fees,' I told them. And they nodded and said, 'Yeah, we hear you. We're not going to do anything about it, but we hear you.'"

That's when the CIO made a new priority of exploring payment system options.

Retail payment system choices have become much more numerous in the last few years, with contactless readers that more easily integrate with POS, chip-embedded smartcards, keyfobs, and even the ability to use a customer's own cell phone or PDA as an impromptu payment device.

But these alternatives are becoming especially attractive in areas—such as convenience store chains like Wawa—that have historically been dominated by cash and, to a much lesser extent, debit.

Many of these systems pitch CRM (customer relationship management) integration as a key selling point, but McCarthy doesn't see that as an issue for his customers.

Contactless payment system vendors and banks "were touting CRM, but our average ticket is $3 or $4. Our customers tell us, 'We don't want the gimmicks. We don't want the loyalty programs.'"

What convenience store customers do want is convenience, and they often interpret that as speed. Speed happens to be one of the arguments in favor of contactless devices, but McCarthy said he didn't see the speed argument playing out.

The big time savings sold to him was that customers wouldn't have to spend the time handing a clerk his or her credit and waiting for the clerk to later hand it back. But Wawa—which has its stores in Pennsylvania, New Jersey, Maryland, Delaware and Virginia—had already installed magstripe readers for the customers to use directly.

"Our customers, they swipe their card anyway. We have the device in front of the register. [The customer] still has to take it out, so it wasn't a really big time savings." McCarthy said that he concluded the checkout acceleration would be too small to be worthwhile.

But some in the banking community are discussing allowing small credit transactions—those that are less than $25—to complete without a signature, McCarthy said. Now that time savings would be much more significant, he said.

McCarthy has already tried shortening the payment duration with a frame relay connection to every store, which "delivers a 2- to 3-second response time on credit, which is awesome," he said.

He is also trying to modernize the chain's cash management system, but that's proving difficult. "The biggest thing we're facing right now is that we have a lot of legacy applications" including many that are about 18 years old, he said. As those systems are replaced, Wawa will be able to improve its cash management.

With the current state of banking and credit/debit cards, McCarthy is also seriously exploring creating a Wawa-branded credit card as a way of taking control—to a certain extent—its out-of-control fees. Not only does he believe Wawa will be able to negotiate lower fees, but the chain would earn money from the cards they issue as the banks want cards that will be used for many kinds of purchases.

McCarthy said that RFID wireless payment systems—similar to Mobil's Speedpass—is of interest, but that he would love to be able to use RFID to help with inventory. "There certainly is a lot of applicability," he said.

But today's tag prices—McCarthy said he's still seeing prices from 25 cents each to as much as 50 cents—are still far too high to consider for such a low-margin retailer. He said he needs to see the tags selling for "probably a penny or so."

"You're making a couple of cents on an item. How can you afford to do that" unless the price gets to about one penny? he said. McCarthy also said he needs to factor in the additional storage and related data management costs. "Think of the data requirements. Every SKU could have multiple records."