Money Mind Games

Digital currency reworks traditional notions of cash, plastic.
There was a time when businesses would frame the first dollar they made.
For a new business today, that first dollar would be a speck of data in a bank server somewhere in oblivion.
As the convenience channel moves toward accepting mobile payments, loyalty rewards and digital coupons, the idea of paper currency and the tactile nature of giving a bill or a coupon to a cashier to start the pump or get a discount on a pack of cigarettes may be fading, evolving into transactions that exist only in an ocean of unseen bits and bytes.
Concepts such as Bitcoin or truly digital currency have also entered the dialogue, forcing retailers to rethink payment beyond paper money or even using established credit- and debit-card systems.
C-store retailers are already moving slowly into this arena. The 244-store Maverik chain, based in North Salt Lake, Utah, is about to embark on its mobile-wallet trial with Isis, the New York-based electronic-payment platform created by three major phone carriers.
“Everything mobile is the current trend, and that includes mobile wallets,” says Shon Call, executive director of store technology for Maverik. “Customers love the convenience of it and really are driving the demand for all their services to be available on their mobile device. That includes payments.”
But prior to the effort, Maverik had already launched a two-tiered loyalty program through which customers earned points that could be exchanged for fuel discounts, merchandise or even donations to their favorite charities.
The company’s Adventure Club Rewards Black Debit Card loyalty program asks customers to tie their bank accounts to the card, thereby using the less expensive automated clearinghouse (ACH) payment process vs. higher credit-card interchange rates. The program turns the savings into 6 cents off every gallon every day, plus points for purchases.
In essence, retailers are rewarding customers with digital currency to encourage them to buy more frequently or purchase higher-margin goods.
The disconnect in thinking that retailers aren’t outright giving pennies or dollars to every customer using a loyalty card—and legally they aren’t—stems from the tactile nature of cash. David Wolman, an author on the topic who spoke earlier this year at The Tech Event in Dallas, said most people have already resigned much of their financial lives to digital currency such as online banking, direct deposit or even using their credit or debit cards.
“So by and large, we’ve said yes to electronic money. However, we think the money is … in gold or [physically] sitting somewhere,” he says. “I’m sorry. It’s not. Most money is already zeroes and ones in distant servers.”

A Server Far, Far Away

The concept of digital currency can be mind-blowing. Bitcoin, for instance, is at its essence electronic money not tied to any bank or institution, but still traded via online exchanges as global currency and is as valid for goods and services as a dollar bill.
Those familiar with the Bitcoin setup liken it to a public “ledger,” in which anyone can view transactions made. That public structure keeps everything aboveboard, but what’s removed are the hassles (and fees) of a typical credit or debit infrastructure. Encrypted systems also keep participants anonymous. So, as with cash, it’s an anonymous transaction.
Bitcoin does have its drawbacks. One of its largest exchanges had a run-in with U.S. federal agents this year regarding filing requirements and whether or not it was a money transmission business. The result was the shutdown of key bank accounts used to settle transactions, stifling the company’s ability to do business here.
Even when left alone, Bitcoin’s value can fluctuate with greater volatility than established currencies. But the concept is out of the gate.
Author Wolman started his book after finding it costs the U.S. Treasury 2.4 cents to mint a single penny and nine or 10 cents to make a nickel. Of course, those costs fluctuate depending on the spot price of raw materials. “It was absolutely ridiculous math,” he recalled. “So it started as a public discussion of minting small coins at a loss.”
What his research led him to conclude was that three trends are pressuring the physical paper-and-coin system of currency that many countries still use today. The first is the growing burden of cash management. Beyond the physical manufacturing of money, Wolman said, the cost of counting, transport and security behind putting cash into registers at convenience stores and outlet malls across the country can be as much as $40 billion to $80 billion—three to four times the budget of the U.S. Department of Education. A source in the U.S. Secret Service told him that 90% of employee time is used not protecting public officials but chasing down individuals who bleach a $5 bill and use a color printer to turn it into a $20.
“I’ve been told cash is blood in the veins of crime,” he said. That’s because organized crime and even those involved in terrorist activities operate in cash. 
These realities alone are reasons to question the continuing use of physical cash, especially bills on “the fringe” such as $50 and $100, and pennies and nickels.
Second, Wolman spoke of the nation’s growing use of alternative forms of cash, such as airline miles: “It’s thriving; people care about it, they even buy and sell with it.”
Another favorite examples of Wolman’s is “Disney Dollars,” another form of what is essentially digital currency but thought of more in the lines of loyalty rewards. While the Disney “money” seems frivolous because it’s associated with characters such as Mickey and Minnie Mouse, for a family of six who save for two years to go to Orlando, “finding out that Disney Dollars will give you 10% to 15% off everything means something,” he said.
The most important result of the emergence of Bitcoin was that it “broke the spell of the dollar’s universality” and what Wolman called “people’s blind acceptance of the dollar as the be-all, end-all.”
The third pressure on physical currency, according to Wolman, is technology. While mobile payment is getting a lot of buzz lately, it may be deserved. A mobile phone can take any currency and almost instantly convert it to whatever’s necessary to pay for that six-pack of beer at the store.
Technology will allow regular people to bypass current financial infrastructures, cutting float times and eliminating interchange fees. He cited Des Moines, Iowa-based Dwalla, which handles payment transactions under $10 for free and payments above for a flat 25 cents.
“But mobile is a tool,” he said, conceding the role phones will play in facilitating change. “The larger or more powerful thing is people’s behavior.”

Retail Gold

Retailers are always looking for opportunities to bypass credit- and debit-card fees. More trials such as Maverik’s are emerging, and a combination of alternative payment and customer incentives has promise.
“Our loyalty program is one of the main vehicles we use to communicate and interact with our customers, and our mobile app is at the center of this program and engages the customer on all aspects of our loyalty offering,” says Call of Maverik. “Our goal is to capitalize on this great tool and increase its value with payments and other fun features.”
Such savings can be as much as 75% of transaction costs, according to Bob Burroughs, senior vice president of product marketing for relatively new loyalty firm Sionic Mobile in Atlanta. He calculates it this way: For a $50 fill-up, a merchant may pay 2% in credit-card fees, which is $1. Sionic earns its income on the distribution and use of rewards, so the cost of the transaction for retailers is 25 cents, because Sionic uses Dwalla to process the charge.
But beyond that cost savings, Burroughs and his team have developed a coalition-style loyalty system in which customers can earn “ions,” or points for shopping at specific merchants, and be able to redeem those points as they build up. Having started the business three years ago within concessions at airports, his firm has expanded to the larger retail space, with a new feature involving fuel purchases at convenience stores.
The overall processing has customers using his company’s mobile app, in which the customer takes a photo of a blank or voided check and uses it as payment. It’s not an ACH transaction and it avoids major credit-card routing, he says.
Much of the flexibility comes from banking developments, most specifically the Check 21 measure that came through in 2003. Prior to that, banks settled check payments by physically transporting enormous amounts of physical checks to each other. The Check 21 reform allowed banks to send digital images of checks to settle transactions. As an outgrowth of that convenience, digital checks—or photos of them—are now an accepted form of transferring payments between parties.
But just because a merchant finds a transaction appealing doesn’t mean a customer will, Burroughs points out: “That’s why we based our payment strategy on giving the consumer a reason to pay with a phone. It’s the reward of ions and getting the benefits with future purchases.”
From a retailer perspective, the time to get into the game is now, Call says. “A lot of companies are sitting back and waiting to see what solution prevails,” he says. “But I believe those who embrace the technology and get involved in the movement will be far ahead of their competitors.”

More Change

Yet just as retailers begin to see the potential of digital currency for their businesses, new challenges can arise. For instance, in Wolman’s presentation, he gave the example of a CPG manufacturer thinking out loud about how these new currencies could allow brands to communicate directly with consumers. Points could be tied to a big-name candy bar or cereal and entice the consumer directly—ignoring or even bypassing the retailer altogether.
“No doubt the brands are getting closer to the consumer,” says Anton Bakker, president of Outsite Networks, Norfolk, Va., whose company has developed an app that can consolidate brand searches and help consumers find retailers carrying their favorite brands. “But I don’t think the retailer will ever get cut out. It’s an impulse [channel].”
And not all retailers are convinced that digital currency is the best solution for c-store operators. “For our industry, we want customers to hand us money,” says Jenny Bullard, CIO of Flash Foods Inc., a 170-store chain based in Waycross, Ga. The company did a soft launch of its c-store app this fall, which includes a mobile-payment option.
“With such technology as virtual money, we would be adding cost for processing to that tender,” she says. “This technology to me would be best used and received with retailers who have a big online sales presence.”
Still, the larger question will be what consumers will ultimately decide to do. In addition to enticing people to change their credit- and debit-card habits, another big hurdle keeping cash alive is what Wolman called the “pain of spending.” Spending a $100 bill is different from swiping a debit card. People still fear overspending. But technology can address that, he said. For example, one start-up allows people to plan ahead and tie a budget of their own making to their credit limits. If later, in a moment of weakness, a person wants to buy a round of martinis at a party, the register at the bar will decline the charge. Such opportunities may emerge to break this remaining barrier.
“In the end, it doesn’t matter if cash goes extinct,” Wolman said. “The more profound and greater impact is all the forces surrounding [the end of physical currency]: greater accounting of cash, innovation in currency and technology. That’s what’s impacting lives and creating business opportunities.”


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