March 30, 2007

More on the Gratis Card

Filed under: Business Moves — Tom @ 6:15 am

This new business was first mentioned at this post about Biz Weak-covered items last week (2nd item; name of card added at original post for continuity).

If successful, the Gratis card and its support system are going to take a meat ax (long overdue, in my opinion) to the interchange fees that merchants pay to credit card issuers when a customer uses a credit or debit card.

Current interchange rates are roughly 2% – 5%, depending on the size of the merchant. A $100 purchase from a small merchant using American Express probably costs the merchant close to 5%, which a $100 purchase using a Visa card at Wal-Mart probably costs the rough-and-tumble retailer a bit less than $2. These costs are not visible to consumers, because the agreements merchants enter into with issuers prohibit them (the merchants) from offering cash discounts.

Gratis promises huge cost savings; it also appears there will be space saved in consumers’ wallets:

GratisCard Inc. will charge 50 basis points on each transaction (That 0.5% — Ed.). The card will be targeted at merchants that process low-value payments. GratisCard says the card requires no incremental investment by merchants since its software works with magnetic stripe and barcode scanners, or simple numeric keypads. The Company also noted its system will reduce transaction time with average processing speed of 30 milliseconds. As a credit card or prepaid card the initial market will be consumers with poor to medium credit. For consumers, GratisCard says the new card can aggregate prepaid and credit cards, as well as other loyalty cards so there is only one card to manage.

If the company’s heavy-hitter backing and seasoned management are any indication, Gratis has to be rated as having a fair chance to succeed. If there’s a downside, it may be that merchants may will look at that 0.5% fee and decide that it costs more than that to accept cash (it probably does), and thus refuse to accept anything that isn’t plastic. If “no cash” becomes widespread, Brinks and other armored truck businesses may have very big haircuts looming on the horizon.



  1. The GratisCard sounds very promising. As you know, I am on the side of the merchants on this issue. I wonder if Visa or MasterCard have responded? I’m sure they are brushing it off since they control 80% of the payment market but time will tell.

    Comment by Triston — March 30, 2007 @ 12:21 pm

  2. #1, my theory is that they’ll cherry-pick by lowering fees to favored merchanges where Gratis attempts to compete to see if they can outlast them.

    Gratis would be real smart to concentrate on that low-ticket niche, which Visa and MC will probably concede, before attempting to move up to the head-to-head stuff.

    Comment by TBlumer — March 30, 2007 @ 12:24 pm

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