CVS, Incomm and Prepaid cards

Discussion in 'General Discussion | Miles/Points' started by Sil747, Aug 8, 2013.  |  Print Topic

  1. Sil747

    Sil747 Silver Member

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    It seems like with the 5k limit at CVS (even with 1k limit), CVS or Incomm would be losing money in the transaction. Doesn't Visa/MC/AMEX collect a fee from merchant (CVS) when a customer uses the credit card? And if Incomm compensates CVS, then doesn't Incomm lose money?
     
  2. edekba

    edekba Gold Member

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    Isn't that what the $3.95 is for?
     
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  3. thesterlingtraveler

    thesterlingtraveler Gold Member

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    I'd think so as well.
     
  4. servo

    servo Silver Member

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    I would presume a portion of the $3.95 fee would go towards the merchant processing charge, but the charge for signature transactions isn't as high as PIN based transactions anyhow. If the percentage is static (which it is, as far as I know) by the transaction type, then increasing the dollars purchased at one time wouldn't have any impact on the bottom line of either company over the $1,000 limit previously.
     
  5. infamousdx

    infamousdx Silver Member

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    I always thought it was a losing proposition because the visa/mc/amex processing fee MUST be higher than $3.95 per $500. But I don't have any insight nor data to back that up.
     
  6. jetsetr
    Original Member

    jetsetr Gold Member

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    I am certain Incomm is not losing money on the transaction. Whether CVS is losing money may be a different discussion.

    For Incomm, I would bet that they are earning tiered bounties based upon volume. For example, if in the aggregate Incomm enables 'x' dollars of reloads onto a particular prepaid card (say, Amex Bluebird), then they get a "rebate/award" from that prepaid card issuer. If Incomm hits a higher "tier" of reloads enabled, the rebate paid by Bluebird to Incomm increases. And this is why Vanilla Reloads can be used to fund a variety of different cards - having more funding opportunities is like having a diverse investment portfolio: It simply increase the opportunities for Incomm to collect a bounty.

    Why would Bluebird pay a bounty to Incomm, you ask (in other words, why does Bluebird allow itself to be funded with Vanilla Reloads)? Because there must be the data to support that use of the Vanilla Reload (versus just being able to fund a Bluebird at Walmarts, for example) provides greater net volume of usage (and theoretically, potential increased swipe fee revenue for Bluebird through consumer usage of the Bluebird) than Bluebird and Walmart would be able to achieve through their own closed-network marketing channels. The moment VRs no longer do a better job of helping Bluebird increase usage is the day we will see the termination / lack of renewal of the contract between Amex/Walmart and Incomm.

    As for the $3.95 fee, I am certain that a portion of that fee paid by the consumer to Incomm then goes from Incomm to pay the merchant a bounty for carrying the cards. And this is why gift rack cards are stocked with a variety of different providers and merchants: For not a lot of square footage occupied in a store, having a diverse portfolio of gift card offerings makes it more likely that enough different cards will be sold in the aggregate such that the bounties that CVS makes for selling the cards makes up for the opportunity cost of the store space being utilized by gift cards (and not being used to sell something else).

    However, CVS (and all merchants) must pay a swipe fee when consumers use cards to pay for purchases. Depending on the agreement with the card networks (Amex, MC, Visa, Discover) the swipe fees paid are - again, not surprisingly - based upon volume, either of swipes and/or amount spent. Deliver higher volume, the lower the unit cost of the swipe fee, and vice versa.

    So, is it possible that a CVS store might lose money on an individual transaction where Incomm cards are purchased with a credit card? Sure, it's possible that the bounty CVS receives from Incomm may not be greater than the cost of the swipe fee paid to the credit card network for *that* particular transaction, especially if only VRs are being purchased. But more than likely, the *typical* consumer is buying other products in addition to gift cards, and those other products also generate profit for the store. Thus, in the aggregate (though not necessarily at the individual transaction level, nor at the individual product/SKU level), CVS generates net profit by allowing credit card usage for such items.

    Final note: So then why do some CVS stores allow purchase of reload cards with credit cards, and other CVS stores not? Either because:
    a) at the stores that allow credit card usage for reload card purchases, there must be sufficient overall volume of profit such that it is not worth it for the store to limit credit card usage in certain instances OR
    b) at the stores that DON'T allow credit card usage for VRs, an analysis has been performed that the store is in fact losing money by allowing usage of credit cards to fund VRs.

    Hope this helps.
     
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  7. schnitzel
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    schnitzel Gold Member

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    or:
    c) the legitimate transactions are profitable, but that store has too much fraud.

    I think it's important to note that Incomm is almost definitely selling these to CVS at a discount, but probably less of a discount than the store-branded cards. That's what the $3.95 fee helps to offset. But, that fee almost never covers a payment fee. The customer would have to be paying in cash or with a debit card or loading less than the max $500 to make the $3.95 alone cover the fee.
     
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  8. jetsetr
    Original Member

    jetsetr Gold Member

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    Yup, "c) too much fraud at a store" is a definite possibility, too.

    And sure Incomm may be selling the cards to CVS at a discount (maybe because they get a cut of the action when the funded card, such as the Bluebird, is swiped - depends on the biz dev deal Incomm has with Amex), and sure that $3.95 fee covers part of the discount and/or part of the bounty paid to the merchant.

    But the selling of and the profiting from the sale of the reload card rests squarely on CVS' shoulders, and theoretically drives the decision whether or not credit cards can be used to fund the reloads. Theoretically, because someone would have to do an analysis to see what the data shows.
     
  9. JetsettingEric
    Original Member

    JetsettingEric Silver Member

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    The addition of the drivers license scans should reduce the amount of fraud.

    If you were a criminal and had a stolen credit card. The first thing i would do is see if it works at a gas station, and the second thing is I would buy gift cards and expensive resell-able items to cash in. Then a plane ticket to go somewhere exotic and escape.

    Now... compare that to a fact pattern that I am sure describe some of us. Buy some gas to drive to different stores. Stop by CVS to pick up some reload cards. Buy some goods off a shopping portal for ebay. Buy a cheap, low cpm (possibly mistake) fare to some place most of americans haven't heard of, and possibly last minute.
     
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  10. vickers

    vickers Gold Member

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    I have yet to find a CVS in the HSV area that allows purchase of VR with a CC. Maybe its a regional thing?
     
  11. servo

    servo Silver Member

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    When you say they don't allow it, you mean they tell you that it's cash only, or they actually try to run it through with a credit card and the register rejects it? There's a big difference. If they just tell you cash only, you can attempt to persuade by saying that your "friend" in Florida is able to buy these at CVS with a credit card, and CVS' aren't franchised - you should be allowed $5k per day max with over $1k requiring a DL swipe. Respectfully request that they "try to see if it goes through", and if they persist, then you're out of luck. Sometimes it takes a little hunting and a dash of charm.
     
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  12. vickers

    vickers Gold Member

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    I just see the sign and walk out. But thats a good idea. Ill give it a shot and ask them to try it. Thanks.
     
  13. cmwood

    cmwood Silver Member

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    I've never been able to buy a reload card anywhere without showing ID. Seems like a dumb thing to buy if you are using a stolen credit card.
     
  14. deant
    Original Member

    deant Milepoint Guide

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    But that is what fake driver's licenses are for.
     
  15. Liucoke

    Liucoke Silver Member

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    Sadly, I think fake IDs are unavailable to our community since license fabricators only take cash :)
     
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  16. marathon man
    Original Member

    marathon man Silver Member

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    While I am sure there are all walks of life out there, I have heard the same story from managers in different chains of stores... not just different stores: "Oh well there's been lots of fraud sir... one of our stores recently had a customer buy these and the clerk forgot to see ID and later we found out the customer was using a stolen credit card. In another store, a customer did the same thing and had a fake ID to match it"

    It's like each store chain--CVS, Stop & Shop Supermarkets, Staples, etc etc, all go to the same seminar to learn catch phrases to use on us. It's one thing to prevent real fraud. It's another to notice this and therefore catch a manager telling it to you in a lie.

    I think some just do not want to sell the cards to us and so they make up reasons like the one above or draw them from a list of things they are authorized to say to customers if need be (We are the ones for whom they would need to be doing this, as we press for answers).

    Some do not want to sell to us because they are afraid of messing up and don't want to be in trouble for blundering a $5k transaction. It's better for them to either offer the product and turn someone down "because of recent fraud in another store" or take them off the shelves for the same fake reason.
     
  17. marathon man
    Original Member

    marathon man Silver Member

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  18. ariosto

    ariosto Silver Member

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    I sure hope not but you might be right. At least in my case i have received the ease of meeting minimum spend for a while.:cool: now time to start Burning miles
     
  19. Muerl
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    Muerl Gold Member

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    I am inclined to agree with all of this.

    But MM and I are in the same area, so it could be a regional thing.
     
  20. infamousdx

    infamousdx Silver Member

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    It was just a matter of time so stock up as much as you can!
     

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