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Visa's Wal-Mart Deal: Only the Opening Act
December 3, 2003
Look for Visa USA Inc. to attempt a few more deals with other major retailers similar to the arrangement it has reportedly struck with Wal-Mart Stores Inc. The nation's biggest retailer announced today it will no longer accept MasterCard International Inc.'s signature debit cards, citing their high costs. Industry observers say Wal-Mart's deal with Visa includes reduced interchange rates on Visa signature debit.

Industry experts expect Visa to strike a limited number of such deals in the coming months, but they will be with merchants carrying a lot of clout. "There are only a handful of retailers in the country that would even be worth Visa pursuing their business, but that handful represents a significant volume of debit transactions," says Marc Abbey, a partner in First Annapolis Consulting. John Gould, director of consumer credit for consulting firm TowerGroup, agrees. "I think Visa will try to replicate what it did with Wal-Mart with other retailers, but I don't think it is worth it to Visa to go after that many other retailers. Going after the supermarket chains, for example, which have a lot of debit volume, would be very difficult because they are so fragmented. Getting Wal-Mart was important. Nobody else has the size and power in the market that Wal-Mart has."

As for MasterCard, observers say having its signature debit cards no longer accepted at Wal-Mart is a "serious blow" for the association's image and brand prestige, but will have a small impact on total debit transaction volume. Wal-Mart says less than 1% of its total sales come through MasterCard's signature debit cards. Furthermore, Wal-Mart has a policy of automatically requesting a personal identification number when a debit card is swiped in one of its terminals, which means both Visa and MasterCard signature-based debit networks were the "last resort" for routing debit transactions. Only if there are no regional EFT logos or if a customer specifically demands that the transaction be routed as a signature-based debit transaction would the associations see the transaction. And even then, nationally Visa has four times the debit volume of MasterCard due to its much higher card penetration.

More significant in the move, however, is the message it sends about MasterCard's debit program at a time when MasterCard is trying to turn its signature debit program around and get more of its cards in the market. "Not having the largest retail chain in the country take your cards is a serious blow when MasterCard is struggling to be a player in debit. Not only is it way behind Visa in debit, but if the First Data-Concord deal goes through, First Data will have twice the total debit (PIN and signature) volume of MasterCard," Gould says.

For its part, Wal-Mart only confirms that MasterCard signature debit cards will no longer be accepted by the chain effective Feb. 1 because of MasterCard's "high transaction costs compared to other debit alternatives." Wal-Mart says it will continue to accept Visa signature debit cards, but that "no definitive agreement will be reached with Visa" until after a federal judge approves the proposed settlement Wal-Mart reached with Visa last April with regard to its debit lawsuit. However, a spokesman adds that the chain could resume accepting MasterCard signature cards "at any time. We will consider any proposal."

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