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How to turn your driver's license into a debit card

24 states' licenses bear magnetic stripes; use them and save

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Is your driver's license a total waste of wallet space, not to mention an annoying reminder of your worst hair day ever?

Why not convert it into a working debit card and save money at the pump at the same time?How to turn your driver's license into a credit card

If you live in one of 24 states that attach a magnetic stripe to their driver's licenses, you can easily transform yours into a debit card -- and save three cents or more per gallon at the gas pump in the process -- by registering it at Rollbackprice.com.

The nifty card trick is the brainchild of National Payment Card, a 5-year-old debit payment middleman ("intermediate service provider") based in Coconut Creek, Fla.

Bypassing the card networks and their fees
NPC figured out a way to bypass the increasingly costly national bank-owned credit/debit card networks (Honor, Star, Interlink and others) and offer debit card processing through the direct deposit Automated Clearing House (ACH) network to gas stations and convenience stores at a fraction of the cost.

According to the National Association of Convenience Stores (NACS),  credit and debit card fees among its members rose from 4.8 percent of gross profit in 2002 to 7.6 percent in 2006. The total cost of convenience store card fees in 2006, $6.6 billion, far exceeded the industry's total profits of $4.8 billion, meaning the credit card industry made more from the stores than the store owners themselves.

There are 24 states where a driver's license can be turned into a debit card
States where a driver's license can be turned into a credit card
Alabama, Arkansas, Arizona, California, Colorado, Florida, Iowa, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, New Hampshire, New Mexico, New York, Ohio, Pennsylvania, South Carolina, Texas, Vermont, Virginia and Wisconsin all allow driver's licenses to be turned into a debit card.

"Because we charge a flat-rate fee of 17 cents as opposed to a percentage-based fee; instead of paying 10 cents a gallon for credit card fees, with us the merchant pays 1.7 cents," says Joe Randazza, NACS president and CEO.

The gas station-convenience store industry was one of the few markets price-sensitive enough that a few pennies per gallon savings would serve as sufficient incentive for consumers, especially when gas topped $4 nationally.

"We change consumer behavior by rolling the price at the pump back three cents immediately," Randazza explains."The merchant is then able to use the money they would normally be paying Visa or MasterCard to fund the (consumer's) reward."

Randazza says consumers can save anywhere from three to 12 cents a gallon by using their driver's license as a debit card, depending on the station.

But the real driving force behind the NPC business model is the savings realized by merchants who have seen their margins shrink drastically in the past few years, due in large part to higher interchange fees for card transactions. By taking a low flat fee instead of a percentage, NPC and its merchants come out ahead.

"We picked a vertical market -- the gas station-convenience store industry -- with 115,000 transactions on a daily basis at 140,000 locations," Randazza says. "We don't care about the size of the basket, we care about the shopping frequency."

How it works
NPC's secure online driver's license registration links your personal identifiers (name, address, phone, e-mail address, birth date and driver's license number) to your checking account with a four-digit PIN of your choosing. Once registered, your license and PIN work just like a debit card at participating merchants, initiating an ACH e-check funds transfer from your checking account to complete your purchase.

The license is used only as an access device to verify your identity; no financial information is stored on or taken from the mag stripe. Nor are the issuing states involved in any way; their licenses are being used merely to verify identification, just as if you were writing a check.

As for security, the potential for fraud is low because no consumer financial information is actually stored on the driver's license itself. The NPC system limits weekly withdrawals to $300 and automatically disallows a purchase after three failed PIN entries. Should fraud occur, the consumer's liability would be limited to $50, standard for debit cards.

Randazza says piggybacking on the functionality of state-issued mag-stripe driver's licenses enabled his company to overcome one of the biggest hurdles to new payment providers.

"How can you put another card into consumers' pockets?" he says. "That has always been difficult. Gas companies failed. Discover failed. Diners Club failed."

There are limits to the license program. Only convenience stores and gas stations that process via the NPC network will accept your driver's license as a debit card; a list of participating vendors is available on the RollbackPrice site.

Grocery, drug stores next in line
But NPC is about to take its end-around run to a new level as it rolls out its national program, which turns loyalty and membership cards into instant debit cards for use nationwide. In addition to gas stations and convenience stores, the company plans to expand into supermarkets and drug stores in the future, two more vertical markets with tight margins and high daily transaction counts.

"We started marketing the system in 2006, and it has only been in the last six months that we have had the ability to gain access to an open network," says Randazza. "Now we're on the debit rail, so now our card is able to be accepted at any place a debit card is accepted. We are now a national program and it is about to take off like gangbusters. We will be an 'overnight success' after four years." 

Published: January 8, 2009



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