Will Retailers Use Tender Steering To Take Control Of Interchange?

A process called “tender steering” is new to most retailers. It means that a retailer can provide incentives to customers to use a particular type of card to pay. This method could give retailers the power to drive interchange rates down by driving customers to some types of cards and away from others.

You might think that after half a century of having little or no control over the fees they pay to accept card payments, retailers would be demanding that all mobile commerce products and NFC-enabled systems support tender steering. They are not. Retailer associations have been virtually silent on the topic, and there are no reports of major retailer pushing this service.


Since the invention of the credit card, retailers have had little choice in the fees they pay to accept cards as a payment type. Retailers could negotiate with their providers (a.k.a acquirers or independent sales organizations) for volume discounts, switch to lower cost providers, or choose to accept some card brands like MasterCard or Visa, and exclude other brands. While these tactics and strategies have lowered fees for some retailers, the scenario has been generally unchanged for decades.

Tender steering will allow retailers to drive market conditions for payment products. If new mobile commerce products and services off competitive schemes and payment methods (like PayPal and ACH) to consumers at retail stores, the fees supported by both retail banks and MasterCard/Visa may be forced lower by retailers leveraging tender steering capabilities.


If tender steering mechanisms are designed out of the mobile commerce systems currently under development, then retailers may not have the option to use this powerful system, and retailers may emerge – again – as subjects to the payments industry.

The recent announcements by the major payment corporations (MasterCard, Visa and others) will impact mobile commerce in United States are beginning to crystallize the strategies and revenue models of these companies. Unfortunately, retailers do not appear to be a voice in the development of the strategies and revenue models. As a result, tender steering mechanisms appear to be missing from most or all of the models currently under development by the MNO’s, banks and schemes.

In fact, all recent announcements seem to point to the development of the mobile commerce arena in the United States as a set of programs dictated to retailers, not designed by retailers. If you can prove me wrong, I want to hear from you.

The key to reducing costs for retailers using mobile payments is looking beyond interchange alone. Tender steering is probably the best opportunity for retailers to effect market rates for payments, which is the polar opposite of the present situation.

© 2011 by David W. Schropfer

David W. Schropfer is the author of The Smartphone Wallet – Understanding the Disruption Ahead, which is the first book about mobile commerce written for consumers and retailers. He is also a Partner with the consulting firm: The Luciano Group, where he heads the mobile payments / mobile commerce practice. Mr. Schropfer has pioneered new businesses with multiple firms from Fortune 100 conglomerates to startups.


  1. imo, there are plenty of ‘startups’ breaking with interchange tradition although they do face the extremely daunting challenge of acquiring millions of merchants on their new paradigm, so you may not hear about them often (and certainly dont see people or merchants using them). maybe PayPal + Fig could be successful; or ProPay + Zumogo, where the new tech has a distribution partner to back it up and acquire merchants.

    also, merchants have had the ability to ‘steer’ consumers to cash (not uncommon) and from signature to PIN (extremely rare) to save on interchange…but, alas, the front-line is typically a clerk working for a low wage and not highly motivated to save her employer a few cents….or, its an owner of a small business not inclined to inconvenience one of her few customers.

    • The article refers to a service that is not yet available–and hypothetically may never be available–to merchants. the service would allow systematic or automatic incentives to be pushed to the consumer without the clerk or small business owner getting involved. For example, a POS could be programmed to give a 1.5% discount to anyone who chooses to use PayPal as a payment type, and a 0% discount for every other payment type. See image for an illustration.

  2. mCommerce is not an in-store phenomenon, it is an out of store phenom. So I can’t see how this is applicable. mCommerce is merely channel replication of what is happening online.

    The new Bricks&Mobile philosophy demands that new payment mechanisms will need to be invented for the consumer to be able to use the phone as the payment mechanism in the store. Like NFC for instance or the technology that Aislebuyer are building. Either way, these are going to take a while to get to scale.

    • I agree, mCommerce is not an in-store phenomenon… yet. and, I agree that the scale up will take time. the point is that tender steering features may or may not be built into the systems that will be available to retailers in the next few years, and if that happens it could significantly delay this opportunity for retailers.

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