With its 400 stores in a 12-state area, Minneapolisbased Holiday Stationstores is hardly an industry giant when compared to some of its peers. The chain reports good results from a strategy intended to help it compete with much larger petroleum retailers: a co-branded credit card introduced in late 2003, in partnership with Chase Manhattan bank.

Customers can choose the MasterCard or Visa card to obtain discounts not only at Holiday Stationstores, but also at other retail locations. Holiday customers using the card receive an 8% discount on gasoline and purchases for three months; then the rate drops to 4%. Customers can use the card for a 3% discount on fuel purchases from other retailers, and 1% on other purchases.

The Holiday/Chase card reflects a couple-of trends in the credit card industry. Approximately 20% of all Visa cards in the U.S. are now co-branded, according to Visa, and that number is expected to grow to 50% over the next few years. The newest trend in co-branding is providing rewards, such as discounts, rebates, special offers or other rewards, to add value.

For retailers, the primary reason for cobranding is that allowing the customer to use the card at other retailers makes it more desirable—to the consumer, and the bank issuing the card. If the card was only good at Holiday, for example, most consumers probably won't want to carry it. For that reason, the petroleum industry has seen "a huge decline in private-label cards," according to one analyst.

Previously, co-branding was a strategy the banks reserved primarily for major oil companies. Banks that issue Visa and MasterCard have "run out" of major oil companies and are now seeking mid-tier companies, like Holiday and RaceTrac Petroleum, which introduced a co-branded card of its own in 2004.

Another major motivator for retailers to offer co-branded cards has been increases in the interchange rates collected by banks on credit card transactions. In 2002, the retail industry as a whole paid 0.8% of total sales in card costs. Last year it was 0.95% of sales, and there's been a pretty hefty increase this year—up to 1.05%. But by having a Visa or MasterCard logo on a card, a retailer can receive a small percentage rebate on the standard interchange.

Holiday Director of Petroleum Marketing Ed Hoffman says Holiday introduced the card with the goal of issuing 10,000 of the cards in the first year and "we're on pace to do that." The alliance with Chase has allowed Holiday to "get in the game" and compete at a higher level.

"We're using this as a modified 'loyalty card,'" Hoffman says. "Because it has our logo, statistics have shown a customer is far more likely to use it at Holiday than anywhere else."

Of course, rising gas prices have given the card an unanticipated marketing boost, Hoffman says. "The higher the retail price of gas, the bigger the discount. If gas is at $2 a gallon, that's 16′ a gallon for the first 90 days and 8′ after that. That's pretty dramatic savings, and we've tried to state it that way. People are inundated by card offers, so getting the 'Never pay full price for gas again' message in front of the customer is key."

On Aug. 1, 2004, Atlanta-based RaceTrac Petroleum rolled out a new cobranded MasterCard to its 540 stores in 12 states. RaceTrac's new member bonus offers cardholders a 10% rebate on all purchases at RaceTrac locations and 2% on all other purchases for the first two months the account is open. After the first two months the rebate becomes 3% on purchases at RaceTrac and 1% on all other purchases. The company injected a customer loyalty element into the equation with several card designs, including a generic "platinum-style" card, and one featuring an exterior shot of a RaceTrac store, according to Kara Kazazean, RaceTrac's project manager for payment systems.

With convenience retailers processing higher numbers of credit transactions, administrative costs will become more of an issue. Denver-based industry consultant Gray Taylor expects to see convenience retailers follow the lead of grocery chains that have greatly reduced their transaction processing costs by turning their credit card-management chores over to automated clearing houses (ACH). According to one analysis, if the "average" U.S. convenience retailer turned just 10% of its credit transactions over to an ACH, it would save $1,500 per year.

While some c-store chains have considered such a move, grocery chains have service desks to help customers handle paperwork. But most convenience stores, Taylor notes, simply don't have the space or resources for such accommodations.

Sheetz gets carded When Sheetz Inc. went in search of its own "branded" consumer credit card, it didn't realize it would get the chance to improve service times in the process. Because of a new radio-frequency-based technology debutingin Sheetz stores this month—MasterCard PayPass™— Sheetz expects to shave 13% off the time it takes to process customer transactions using a credit card. Realistically, that translates to only a second or two, but the Altoona, PA-based chain continually strives to speed up service times, according to Executive Vice President of Marketing Louie Sheetz. "We were going to be developing a consumer credit card anyway, and MasterCard made some funding available to help us purchase and install these [RF] receivers," he says. "A customer presents the card, and through an RF chip, the card extracts everything—it approves the sale and captures the sale amount in a split second. It's more of a tap-and-go system." The typical Sheetz store will have three to four receivers at the sales counter, as well as a receiver on both sides of every fueling position, requiring an estimated 12 pump receivers per site. The implementation will provide quicker service at Sheetz's 300-plus stores in Pennsylvania, West Virginia, Maryland, Virginia, Ohio and North Carolina. MasterCard PayPass cardholders can pay for purchases by simply tapping their PayPass-enabled payment card on one of the special terminals. Moments after the cardholder taps the PayPass-enabled card, account details are communicated to the terminal and then processed through the MasterCard network for clearing and settlement. PayPass streamlines the shopping experience by eliminating the need for customers to provide their John Hancock for transactions under $25. "We've seen the growth of credit transactions in our business, and the number of requests for our own consumer credit card has been huge," says Louie Sheetz. "We've watched credit card sales grow over the last 15 years, and we had already been in the fleet card business; the growth of that segment has also been trending up. The Sheetz card that will utilize this new technology will be a MasterCard with a Sheetz look." While the PayPass technology is now live, Sheetz won't introduce its branded consumer credit card till mid-May, according to Louie Sheetz, adding that the most difficult part of developing the card was fleshing out the reward program. For the first month Sheetz will be offering a 10% rebate on all purchases made at Sheetz, and after that the rebate will fall to 3%. Customers immediately begin accumulating purchase points, and when the rebate hits $25, the company will mail a "Z Card" right to the customer's house. - Bill Donahue, Editor