In just three short months, MasterCard International did what it was unable to do for years-capture measurable signature-based (offline) debit card market share from archrival Visa USA. Unless Visa nabs a large debit MasterCard issuer, MasterCard's offline debit card share could rise to 33.4% once three financial institutions that recently announced plans to defect from Visa begin issuing debit MasterCards, an analysis by CCM sister publication ATM&Debit News suggests.
As of Sept. 30, MasterCard's share of offline debit cards issued in the U.S. stood at 28.4%. Visa had a 71.6% share. Visa check cards and debit MasterCards currently are the only U.S. offline debit products. Neither Visa nor MasterCard had reported fourth-quarter data when CCM went to press in January.
By far the biggest catalyst driving MasterCard's sudden rise is Washington Mutual, the nation's third-leading debit card issuer behind Bank of America Corp. and Wells Fargo & Co., the two of which combined issue more than 31 million Visa check cards, ATM&Debit News survey data show. On Jan. 5, WAMU announced it would convert its 9 million Visa check cards to debit MasterCards starting at the end of the year.
WAMU's decision to defect from Visa to MasterCard follows similar moves announced recently by San Francisco-based Bank of the West and Associated Bank in Green Bay, Wis. Those two banks combined issue 850,000 offline debit cards.
Observers expect J.P. Morgan Chase & Co. soon to announce the next big offline debit branding decision. Chase, which issues some 2.4 million debit MasterCards, last July acquired Bank One Corp., which issues about 5.2 million Visa check cards. The combined 7.6 million total makes Chase the fourth-largest offline debit card issuer.
Industry insiders say financial institutions weigh numerous issues when deciding on card brand alliances, including interchange revenue potential, financial assistance with marketing and conversion costs, and membership costs.
"It wouldn't surprise me if there were financial incentives involved that nobody will comment on," says Paul Tomasofsky, president of Two Sparrows Consulting, a Montvale, N.J.-based consultancy.
Indeed, both MasterCard and WAMU are vague on details. WAMU executives were unavailable to comment, and Richard G. Lyons Jr., MasterCard senior vice president, would not say whether MasterCard will help pay for the brand conversion or any exit fees Visa may impose.
Visa in 2003 announced it would assess heavy fines on any top-100 check card issuers that defect to MasterCard to avoid helping Visa pay its $2 billion settlement in the merchant class-action litigation. MasterCard's motion to remove Visa's exit-fee bylaw was tossed out by a U.S. District Court judge on a technicality.
Some observers believe MasterCard may have agreed to help WAMU either pay the Visa fine or challenge it in court. "Maybe MasterCard indemnified them," says David Balto, a Washington, D.C.-based antitrust lawyer and former Federal Trade Commission official. "Exit fees seem to be the type of exclusivity rule the (antitrust) agencies challenge with regularity, so if Visa decided not to enforce it, I wouldn't be surprised."
Lyons, who says he still believes the Visa bylaw is unlawful, would not say whether MasterCard would try to challenge it again. However, he says MasterCard has worked hard to make its brand more desirable to issuers.
"Acceptance, product management and how we conduct ourselves is different, and this is evidence that we've been looking at the debit value proposition the right way," Lyons says. "And Washington Mutual has voted with us."
Other observers believe MasterCard's flexibility and willingness to put new ideas on the table may be another factor playing in the issuers' branding decisions.
"If that's important to an issuer, then that would give MasterCard a real strong position in terms of what they could offer," says Les Riedl, executive vice president at Speer & Associates, an Atlanta-based consultancy.
Tony Catalfano, president of Brookfield, Wis.-based Fiserv Inc.'s Fiserv EFT unit, a transaction processor and owner of the Accel/Exchange network, agrees.
"The perception in the market right now is that MasterCard is more flexible (than Visa)," he says. "MasterCard seems to be a little more open to allowing you to do other things."
Stacey Pinkerd, Visa senior vice president of consumer debit products, says the recent defections from Visa to MasterCard illustrate the growing competition in the debit marketplace. He adds that Visa is intent on continuing to compete and stay the industry leader.
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