The Proprietary Card Opportunity
I worked for Flyers Energy (originally Nella Oil) for a total of 11 years, first rising through the ranks in IT and eventually running that department for three years. In 2015 I was involved in the discussions for developing a proprietary commercial fuel network and at the end of that year offered the opportunity to develop the program called the Oly Network.
While the commercial fuel card industry is vast and complex, we can simplify the "types" of cards by boiling them down to the following:
- Commercial Fleet
- Proprietary card
- Hybrid
Commercial fleets in this case are the large national networks such as Fleetwide (et al), Voyager, WEX, etc. The proprietary cards are usually limited to one company and its customers within a small regional area. The first push with Oly used a hybrid approach where we used Voyager plastic that would process domestic transactions internally while leveraging the full network for remote transactions.
The terms for processing domestic transactions vary with the large fleet networks. Generally, however, domestic transaction fees are minimal - your customer, your site, your fuel, your profit. Things start getting ugly though once you factor in remote transactions - your customers at someone else's site.
I developed a presentation for Oly that demonstrated the value proposition for the commercial fleet programs and the cost of doing business. After running through the favorable numbers and the cost for domestic transactions, I followed up with the price for remote transactions and added fees. Transaction fee plus a per gallon fee (on both sides). Then there were the monthly fees: fraud protection, update fees, maintenance fees, access fees. etc. Ultimately I didn't have to put any kind of a spin on it to make my point - we left tens of thousands on the table.
The fuel business is a highly competitive one with typically low margins. Companies are always looking for ways to save money and operate more efficiently. So, every company is looking for a better way and a proprietary card/network always deserves a look.
Unfortunately the creation of a private network is no small task. Aside from securing the ISO for your new card and creating the account, number generation, and processing systems, you will need a processor. Either you can be your own processor and develop a system in-house or utilize a third-party. The latter provides the quickest and less painful route, but comes at a cost of anywhere from .05 to .20 per transaction.
The additional benefit of a third party processor is the integration with site controllers. While there are a handful of site controllers you will need to communicate with, starting from scratch means a long road ahead of development and testing. If the site controller company already has a module for a processor, it's far easier to navigate through this part of the project.
So, there's a lot involved to develop your own card and it would depend on the company, its customers, and market as to whether it makes sense to move forward. While you would need to develop the platform as if you will be the only participant, the real value of this network is in "trading" transactions.
Say you have twenty five sites and 60% of your gallons are domestic with the remainder fueling at your competitors. Those other jobbers are experiencing the same pattern, so you are effectively trading gallons although on the fleet networks terms rather than your own. What if instead you could negotiate a transaction fee between your competitor and agree on terms that benefit both companies - and without staggering fees that eat away at your profit.
The fleet networks recognize this benefit and are working on programs that operate on the transaction trading principles. Due to some NDA's I can't expand on that, but if they can execute these programs with the interests of jobbers in mind it will really be the best of both worlds.
Based on the costs, time, effort or developing a platform, as well as competition from fleet networks, does that spell doom for the private card opportunity?
Not at all. The opportunity still remains for smaller regional markets, but also for a national market with the right people involved. In the sprint vs. marathon analogy, this is most definitely a marathon. While ultimately it's always going to come down to N cent per transaction, there are other opportunities to generate revenue such as loyalty, advertising/marketing partnerships, etc. While historically we look at fees to improve profit, creative marketing and advertising would go a long way in adding revenue.
I'm sure you can tell this is a subject I'm still passionate about. I'm still interested in what the fleet networks can develop and even rooting for them. If they can develop a product that is profitable for them and the jobbers while providing the best value/experience for the customer, then this whole discussion really is academic. But, if there is any reason to doubt that won't happen, it would be wise to look at all other options.