Eyeing Decoupled Debit Cards, Tempo Begins Wooing Bank Issuers

With an eye to Capital One Financial Corp.'s introduction last month of a so-called decoupled debit card product, which relies on settlement through the automated clearing house network and so does not require cardholders to have a demand-deposit account with Cap One (Digital Transactions News, June 7), debit network sponsor Tempo Payments Inc. is changing its own strategy to attract financial institutions as issuers of Tempo-branded cards and users of Tempo processing software. San Mateo, Calif.-based Tempo on Tuesday said it would offer to financial institutions the Tempo Payment Platform, a hosted system of processing services from Tempo's debit network. The intended users are prospective issuers of decoupled debit cards that could use Tempo software for one or more major functions involved with a payment system that relies on DDAs. For instance, a bank could use Tempo software modules for application processing, account administration, customer service, ACH risk analysis, authorizations, settlement, non-sufficient funds processing, and reporting, according to a Tempo release. Issuers could use the services not only for debit, but also for prepaid or even credit cards. Pricing will be on a subscription basis and depend on the services and modules the financial institution uses. “The key strategic evolution is that we're unbundling our technology solution from our payment network,” Mike Grossman, Tempo's chief executive, tells Digital Transactions News. Tempo sponsors a network of 200,000 merchant locations that accept Tempo-branded PIN-debit cards issued by retailer members. Merchants accepting Tempo include regional and national chains, among them like Wal-Mart Stores Inc. While Tempo has had a fair degree of success in signing acceptors of its low-interchange cards, its most significant issuers are local or regional convenience stores and pharmacies. Also on Tuesday, Tempo rolled out Tempo Debit, which it calls the first product to arise from the Tempo Payment Platform. Tempo Debit essentially allows a financial institution to quickly offer its own decoupled debit cards without needing to build an in-house processing system itself, according to Grossman. “That will take a lot of time and a lot of money,” he says. Issuers could use Tempo to issue Tempo-branded debit cards and decoupled Visa and MasterCard debit cards, which will bring them higher interchange income. Tempo touts Prospect Heights, Ill.-based HSBC Retail Services, the U.S. third-party private-label card unit of British banking giant HSBC Holdings plc, as the first issuer on Tempo Debit by virtue of the HSBC-issued OptiPay PIN-debit loyalty cards. OptiPay's first disclosed client is drug-store chain CVS Caremark Corp. But the OptiPay cards are variations on the private-label theme (Digital Transactions News, April 5). Success with its new strategy may be crucial to Tempo's very survival. Capital One's new ACH-based MasterCard rewards card shows that financial institutions are no longer beholden to the old rule that debit cards must come from the bank or credit union that holds the customer's checking account, and the decoupled rewards cards they'll be offering may be hard for consumers to resist. That makes the issuance of debit cards directly by retailers, the original Tempo model, an even harder proposition to sell, according to Robert Meara, banking analyst for Boston-based Celent LLC. “Their [Tempo's] response here may be the only way Tempo can remain viable in the face of what Capital One has done,” Meara says. Grossman says Tempo is still interested in booking retailers as direct issuers and “has gotten pretty good traction lately” with new issuers such as QuikTrip Corp. and Murphy Oil Co. But Tempo's new focus on financial institutions reflects the changing realities of the debit market. “We're trying to provide flexibility to different types of issuers,” he says. “Certainly within that umbrella, we are spending a fair amount of time now with financial institutions as issuers. It's not really new?we've been working with HSBC as an issuer for the past year. But yes, a key part of the offering is offering a solution to financial institutions as issuers.” Grossman adds that, “it is clear that major issuers, financial institutions, have all noticed what Capital One is doing and are taking it very seriously.” These interested parties, which include third-party retail card issuers, represent new opportunities for Tempo, he says. “We're certainly in the process of marketing this capability,” Grossman says, declining to get specific.