A Tempo shake up looks promising

Tempo Payments, Inc. is shaking up the debit card processing industry, and at the same time, sending a loud message to the larger incumbent banks and financial institutions that have dominated (in near monopoly style) the payment processing space for decades.

Tempo’s innovation is a pin based debit card that works on the ACH network, which let’s them circumvent the issuing banks and therefore the high priced interchange that they charge. They’ve built out their own network and are now providing the platform for retailers, financial institutions, and others to issue their own private labeled Tempo cards to their customers. Prior to Tempo, it was largely cost prohibitive for all but the largest banks to issue their own cards because of the high costs of building the inhouse processing capabilty.

Tempo is providing a hosted solution that will allow retailers and financial institutions (banks, and non-bank card issuers) to issue and manage their own portfolio.

Now retailers such as Wal-Mart, Sam’s, CVS and others (who are currently signed up with Tempo) can issue their customers private labeled debit cards and and offset some of the transaction fees by the revenue they are generating. Financial institution’s are now able to do the same and effectively compete with the largest industry incumbents.

In April of this year Tempo secured an agreement with ChasePaymentech to make their debit card available to an additional 600,000 merchants. That was in addition to the existing 200,000 they already had.

One of the advantages offered to consumers is that they can now get a pin-based debit card that does not have to tied to a certain bank account, which is also advantageous to whomever is issuing the card because then they don’t have to be a bank.

What’s interesting about this is how a start up with only $17 million from venture capital firms Integral Capital Partners, Cardinal Venture Capital and Selby Venture Partners could successfully overcome the long standing barriers and gain admittance into the industry.

Others trying to enter the alternative payment processing space like Gratis Card should take note of their market penetration model. By inking a deal with ChasePaymentech they avoid the hassle that Gratis Card is dealing of signing up merchants one at a time. This is the chicken and the egg problem. Tempo is heading down a path of eliminating the supply problem which puts them in a much stronger position.

Tempo’s early success will surely attract a lot of attention from the large incumbents in the industry who are threatened by this such as the existing pin-based debit networks such as NYCE, Pulse, and Shazam as well players like Visa and MasterCard who see that disruption is coming.