MasterCard Inc. is using frequent-flier miles to entice more banks to offer its debit cards.
The move is a significant shift from the standard airline-card model in which individual banks partner with an airline. In this case, MasterCard, which has long been a debit laggard, has forged an exclusive deal with Delta Air Lines to develop ready-made rewards products that banks can offer to customers.
Analysts said that taking on some of this burden, and probably offering significant financial incentives, would make the card appealing to existing issuers and could prompt other banks to switch to MasterCard's debit system.
"A bank would have to be foolish not to dump brand Z debit card," said Bill McCracken, the chief executive of Synergistics Research Corp. "If suddenly MasterCard has a debit card offering that consumers really want, the banks will say: 'We don't really want [Brand Z] debit card anymore.' "
The Purchase, N.Y., payments company announced its partnership with Delta to offer banks a cobranded debit rewards card on Sept. 15 (see story).
Rob Sheets, MasterCard's senior vice president and group head of merchant relations, said in an interview that the card company wants to attract more issuers to its debit program. "We are looking to expand our business," he said.
The impetus for the Delta SkyMiles debit card was SunTrust Banks Inc.'s January decision to move its debit portfolio from Visa Inc. to MasterCard.
The Atlanta banking company began offering a Delta rewards debit card last year to customers in the 12 states where it operates, and Sheets said the new MasterCard product will be based on SunTrust's arrangement with the airline, also based in Atlanta.
He would not give details of the terms MasterCard will offer banks that decide to issue the new card. Individual banks could end up negotiating different terms with Delta.
When SunTrust said it would move its portfolio, analysts said it was all but certain that MasterCard had offered significant financial incentives to do so; with the Delta rewards card, they said it is just as likely that MasterCard would aggressively woo issuers.
A spokeswoman said banks that do not offer MasterCard debit now could choose to offer the Delta debit card to customers without switching their entire portfolios to MasterCard's system.
With standard airline cards, banks earn fees on transactions made with the card, and this revenue pays for the rewards programs.
In the new model, said Patricia Hewitt, the director of debit advisory services at Mercator Advisory Group in Maynard, Mass., MasterCard might be willing to pick up some of the costs.
"If the strategy is successful, it has to be a win-win-win for all parties," she said "If [MasterCard] feels as if this is going to increase their profits, then they would share in those income streams."
To avoid flooding the market with new Delta debit products, Sheets said that MasterCard will offer the card strategically, based on banks' "financial footprint" or "financial significance," starting in cities where Delta flies the most — like Atlanta, Detroit, Minneapolis, Boston, Salt Lake City, Cincinnati and Dallas — and where it has the most frequent fliers.
Sheets would not say how many banks MasterCard is already speaking to about the rewards card, or how many each state could contain. "But we've spoken to enough banks to make us comfortable that there is going to be a lot of demand for the product," he said.
This could mean one bank issuing the card in a city like Dallas, or several doing so in Boston, he said; it all depends on how many customers the issuer could reach within a specific region.
"The best way to think about this is, Delta is a very large airline that has millions of SkyMiles members in the U.S.," said Sheets. "They are looking at providing a debit card solution to any of those members."
Gwenn Bezard, a research director at Aite Group LLC in Boston, said the card could help MasterCard gain badly needed ground in debit.
MasterCard reported 2.109 billion debit transactions in the second quarter, far below the 7.174 billion reported by its archrival Visa for the same period (Visa's third fiscal quarter).
Bezard said that such a partnership between a payment network and an airline was a first to him. "I have never heard about this before," he said. MasterCard is "trying to come up with new ways … to get a foot in the door" with issuers.