libraryFeaturedImage’s Disruptive Approach to Retail and Payments

Navigator Edition: August 2015
By: Katherine Siegrist

Launched at the end of July, (or “Jet”), has ambitious plans to compete with online retail giant Amazon and traditional warehouse clubs such as Costco and Sam’s Club. The startup’s business model hinges on membership fees rather than margins on products, a sophisticated pricing algorithm to find savings in real time, and deconstructed costs to give consumers ultimate flexibility.

Jet seeks to deliver a seamless shopping experience at the lowest possible prices. Borrowing from the warehouse sector and Amazon’s Prime program, requires an annual membership fee of $49.99, but is currently offering a 3-month free trial to attract customers. In this same vein, the Company is also offering discounts for larger basket sizes, much like Amazon’s Add-On products which ship for free with orders over $25 or as a monthly subscription via Amazon Prime Pantry. Unlike a traditional warehouse club, a consumer does not need to buy a particular product in bulk to qualify for a discount; rather, as items are added to a cart, a special price minimizing tool works in the background to lower the total cost of an order. Jet is able to deliver these better prices by ordering certain items at wholesale from other online retailers, dismantling the bundle for their members, and passing along any commissions or other incentives earned from suppliers.

Jet also has an online mall that offers customers the opportunity to earn JetCash, or currency available for use on future purchases, for shopping at other online retailers. While many issuers and retailers have discontinued merchant-funded malls, Jet’s strategy indicates that there still may be value in these offerings, potentially as means of driving online shoppers to a centralized, comprehensive platform and fending off competition from other interfaces like Ebates.

Since price competition is at the center of Jet’s strategy, the new retailer must attract enough new customers to drive economies of scale. While other retailers have been able to continually prove their value via membership fees, pricing and selection algorithms, it is Jet’s unbundled cost approach, including its payments strategy, that are quite unique.

Figure 1: Shopping Experience

Fig-1_-Jet-shopping-experienceSource: company website.

The retail implications are far-reaching, but Jet’s approach to payments is quite interesting given the chatter surrounding surcharging, steering, and the like. Until recently, merchants in the U.S. were prohibited by their contracts with the credit card networks from using discounts or surcharges to steer consumer payment preferences, although merchants were allowed to give discounts to customers who paid cash.1 As a result, most retailers charge the same price regardless of tender type, but the rules are changing. At the end of 2013, a $6 billion Visa and MasterCard settlement also required the payment networks to change their rules to permit merchants to surcharge certain credit card transactions and earlier in 2015 American Express lost an antitrust lawsuit which allows merchants to promote other cards or offer certain discounts.

As a startup, Jet has been able to institute a payment process that rewards consumers for selecting payment products that carry lower merchant discount fees. In its first iteration, the payment types with higher acceptance costs are positioned without a discount, while Visa and MasterCard products are shown as potential savings options (see Figure 2).

Figure 2: Checkout Experience

Fig-2_-Jet-checkout-experienceSource: company website.

This simple presentment only demonstrates savings potential across two dimensions: payment network and payment type. However, Jet may further refine its acceptance discount model by differentiating between network product types or introducing new payment networks.

  • Product-level Discounts: Today on, consumers receive a discount for Visa and MasterCard products and the discount logically varies for a debit card (1.25%) versus credit card (0.25%), but there is not a distinction between a plain vanilla, non-rewards credit card and a rewards-heavy credit card which invariably carries higher acceptance costs. In the future, Jet and other merchants could further discriminate between payment network brands and product types.
  • New Payment Options: If the startup gains traction with consumers, the Company will likely expand payment options beyond the traditional payments networks to providers that leverage even lower cost options such as PayPal, Bitcoin, Venmo, etc. Consumers opting for these payment options could bolster overall influence of these networks and shift volume away from the conventional payment brand networks.

For cost conscious consumers, the positioning alone has the potential to drive down Jet’s cost of acceptance by steering consumers to lower cost payment brands. Conversely, customers can opt to forego a discount in favor of reaping the rewards or other benefits associated with their selected payment product. The Jet strategy is one of the first instances in the U.S. in which customers have been empowered to value the implications of their payment product choice. Since few merchants have adopted such payment pricing strategies, little research has been conducted to demonstrate whether or not consumers have changed their actions as a result. Jet will soon learn if highlighting the choice of payment types in economic terms to consumers will impact consumer behaviors.

1 Shy, Oz and Joanna Stavins. “Merchant Steering of Consumer Payment Choice: Evidence from a 2012 Diary Survey.” Federal Reserve Bank of Boston. May 12, 2014.

For more information, please contact Katherine Siegrist, Senior Consultant,, specializing in Credit Card Issuing.

To read the rest of this article, please subscribe to

The Navigator Newsletter