ticker shock from the increasing cost of credit and debit card acceptance at the POS is leading the merchant community to look for alternative payment methods that bypass the card Associations' networks.

Some of these are Combined Payments Network LLC's Fastlane, which ties gift and loyalty programs and checking accounts to a driver's license; Debitman Card Inc.'s merchant-issued card network; and Pay By Touch's biometric-based solution.

In the Fastlane

"Visa and MasterCard statements have invited merchants to look for alternative [payment] networks," said Carl Towner, Combined Payments Chief Executive Officer and primary creator of Fastlane. "When merchants complain about high [transaction] fees, Visa has said to go somewhere else." Combined Payments cites both security concerns and the recent spate of lawsuits filed by retailers over interchange as an underlying consideration in design of Fastlane.

Towner said that transaction fees will be significantly lower than the fees set by Visa U.S.A., MasterCard International and American Express Co. "The fees will be in the $0.15 to $0.25 range," he said. Combined Payments will announce the exact amounts (and officially unveil the solution) at the Electronic Transactions Association's Annual Meeting & Expo this April.

According to Towner, consumers participating in Fastlane first will allow their driver's license to be linked with a merchant's gift and loyalty program. The next time customers come to the store they will have the option to add their checking account.

Technological advances have allowed for payment network innovations, which provide more options than were available before. "It doesn't cost billions of dollars to build a network," Towner said.

Fastlane works with both magnetic stripe and barcode licenses and uses existing POS hardware. Disparity between states' licenses, however, could hinder the network. For example, Towner said that Georgia's high level of encryption with its driver's license program is incompatible with Fastlane.

Debitman is making friends

Debitman, which calls itself the "retailers' network," is a PIN-based debit product built on retailer loyalty programs. Participating merchants can choose to issue the cards themselves or simply accept them at their stores.

Wal-Mart Stores Inc. and Sam's Club locations around the country now accepting the product have brought much attention to Debitman in the payments world. Other Debitman deals with merchants include Walgreens, CVS/pharmacy and Barnes & Noble. Processors now on board include Chase Paymentech Solutions and Fifth Third Bank Processing Solutions, which clears the payments through the automated clearing house (ACH).

Dan Schatt, a Senior Analyst with Celent LLC, said that merchants are wrestling with how involved they want to be with the program. Even if they readily agree to accept the card, becoming an issuer is a step they may be unwilling to take.

Fastlane and Debitman both offer "acquiring" merchants a portion of the transaction fee for every transaction completed. Once customers are added to either the Fastlane or Debitman system, each transaction made with the respective card generates a fee for the merchant who brought that cardholder into the system.

The touch of a finger

A solution offered by Pay By Touch uses biometric identification, such as a thumbprint, to access a consumer's checking account or existing line of credit.

At participating merchants, consumers register at a separate kiosk and provide a thumbprint, ID and payment account information. At the register, they place their thumb on a sensor. This brings up their preferred payment method along with the store's loyalty program.

Pay By Touch's solution is not limited to checking accounts; it also works with credit cards. Visa and MasterCard, however, classify a fingerprint-based credit card payment as a "card not present" transaction, which is subject to a higher interchange fee.

Despite growing merchant demand for lower transaction fees, it is debatable whether these payment alternatives will present much of a threat to the card Associations. Schatt said that although these alternatives certainly can grow, it will be difficult to overcome the status quo relationship between merchants and the Associations.