Debitman’s HSBC Deal Could Help It Corral More Merchant Issuers

There are no specific issuing agreements yet, but private-label credit card issuing giant HSBC Retail Services has teamed up with Debitman Card Inc. in a deal that could result in HSBC retailer clients offering PIN-debit cards to their customers usable on Debitman's network. If the arrangement pans out, it would fill a big hole in Debitman's effort to become a viable alternative to the major payment card networks. The HSBC alliance was part of a flurry of announcements May 22 from San Mateo, Calif.-based Debitman that included nearly $9 million in new financing and a patent on its business model. That model is based on retailers issuing PIN-debit cards, accepting similar cards from other members of Debitman's network, and paying a small processing fee and interchange of 6 to 9 cents on the transactions?generally less than the cost of PIN debit on national electronic funds transfer networks and far less than the interchange they pay for Visa/MasterCard transactions. So far, Debitman has about 200,000 acceptance locations that include some heavyweight merchants such as Wal-Mart Stores Inc., but only a few, mostly regional issuing members. That could change if the new deal with Prospect Heights, Ill.-based HSBC Retail Card Services bears fruit. No specific issuance programs are under way yet with any of HSBC's approximately 65 retailer clients, but Debitman's new chief executive, Michael Grossman, is optimistic. “We thought teaming up with HSBC will considerably accelerate the issuance of Debitman cards,” Grossman says. “The HSBC relationship is really focused on working together in the context of issuing debit cards.” Down the road, however, it is possible retailers could even issue PIN-protected credit cards on Debitman's network, dubbed The Retailer's Network, according to Grossman. It will be up to each merchant to decide whether to accept Debitman-branded cards. HSBC is the nation's third-largest store card issuer, with $15.7 billion in managed receivables at the end of 2005 and 16.1 million accounts. Clients include Best Buy Co., Costco Wholesale Corp., Bon-Ton Stores Inc., and Saks Inc. Grossman says it was HSBC that approached Debitman about working together. “I think they saw, with debit card usage increasing so rapidly, that they would be in a better position to provide their merchants with a broader [payment] solution if they worked with us,” he says. An HSBC spokeswoman says her firm was impressed by Debitman's technology and platform and indeed wants to add debit as an option for its retailers. “We're looking to explore that as a channel that we can put into our mix,” she says. Asked if any Debitman programs are imminent with HSBC clients, she would only say, “stay tuned.” HSBC Retail Services is an affiliate of another HSBC division that issues bank cards, including the big General Motors Corp. cobranded MasterCard. As such an issuer, HSBC is a recipient of the MasterCard- and Visa-set interchange that Debitman consistently bashes as too high. Grossman wouldn't comment on HSBC's bank card business, but says of its retail operation, “They [are] very merchant-focused as a business.” The HSBC spokeswoman had no comment about bank cards. Meanwhile, Debitman announced $8.7 million in new funding from HSBC and two Menlo Park, Calif.-based venture-capital firms that specialize in early-stage tech companies: Cardinal Venture Capital and Selby Venture Partners. Cardinal and Selby participated in Debitman's $3.5 million private financing last September. Debitman will use the new funding for its growth initiatives. And according to a statement from Grossman, the so-called notice of allowance from the U.S. Patent and Trademark Office for a patent on its business model based on interoperable, merchant-branded consumer debit cards gives Debitman “a proprietary advantage in the operation of a payment network that provides retailers with an alternative to the high interchange rates of traditional card networks.”