Duane Reade Gives Debitman a Tonic As the Card’s Latest Issuer

Duane Reade Inc., a chain of 241 drugstores in New York City, will on Monday become the fourth and so far the largest issuer of the Debitman card, a non-bank, national electronic payment system started last year by a group of payments veterans with roots in the retailing business. Duane Reade will begin with an operational pilot out of its store near Madison Square Garden Nov. 17 and will expand issuance to other stores, with customer incentives and promotions, after Jan. 1. It expects to issue 1,000 cards in the next few weeks, but hopes ultimately to get that number up to 200,000 as it rolls the program out to more stores. “That would be a home run for us,” says Chris Darrow, vice president and controller for the chain, which is also attracted to the card because its transaction costs are roughly half the 30 cents the company pays for debit on the NYCE network. The chain has accepted Debitman since July. The issuance pilot was originally set to start in September, but was delayed so the company could work with its software vendor to allow cash back on Debitman transactions. The card will also function as a rewards card, replacing an existing, non-magnetic-striped Duane Reade loyalty card, the Dollar Rewards Club card, that offers customers discounts on merchandise. The company has issued 2.9 million of these cards. The new card will carry the Debitman logo on the back and a new “Dollar Rewards Club Card Plus Debit” logo on its front. As an added incentive to customers to take and use the new card, the pharmacy chain will allow cash back of up to $50, so cardholders can avoid Duane Reade's 99-cent surcharge on withdrawals at in-store ATMs. Accepted at 20,000 locations around the country, including a slew of groceries and all Walgreen's drugstores. Chico, Calif.-based Debitman Card Inc. has attracted three other issuers, Compton's Markets, Holiday Quality Foods, and National Data Funding, all in California. Two of the principals of NDFC, an independent sales organization also based in Chico, are partners in Debitman along with John K. Lannan, former president of Atlantic Richfield Co.'s PayPoint debit switch, which British Petroleum, Arco's owner, sold to First Data Corp. last year. Featuring personal identification numbers and settlement through the automated clearing house, Debitman transactions cost merchants 15 cents to accept, compared to as much as 40 cents for bank-switched debit cards. Issuers pocket 6 cents, and so pay 9 cents for on-us transactions. Having concentrated this year on building up acceptance, Debitman is now turning to signing up more merchant issuers, particularly those with existing loyalty cards. It's in serious talks with “15 to 30,” says Lannan, who expects more announcements after the first of the year. Acceptance has been boosted by Fifth Third Processing Solutions, a third-party processor that earlier this year agreed to serve as a national gateway for Debitman and help sell the card to its base of 100,000 retailers.