Friday , March 29, 2024

Visa Could Score a Debit Win As Wachovia Jilts Citi for Wells

Just a week ago, it looked like MasterCard Inc. was about to win a battle in its ongoing debit card war with market leader Visa Inc. MasterCard stalwart Citigroup Inc. had struck a deal to buy, with help from the government, most of struggling Wachovia Corp.'s banking assets, including Wachovia's heavily Visa debit portfolio. But with the announcement late Thursday that Visa-oriented Wells Fargo & Co. instead would buy Wachovia intact and without government assistance, it now looks like Visa is about to score an early-autumn debit hat trick. This latest twist, should it overcome reported objections from Citi, follows the earlier announcement by United Kingdom-based Royal Bank of Scotland that it would convert its MasterCard debit portfolios in the U.K. and U.S. to Visa, and a transaction engineered by the Federal Deposit Insurance Corp. in which Visa-leaning JPMorgan Chase & Co. bought the banking assets of the failed Washington Mutual Inc. (Digital Transactions News, Sept. 26). WaMu's approximately 12 million debit cards are MasterCard-branded. While neither Chase nor Wells have stated their debit card intentions yet, buyers usually reissue cards in acquired portfolios on their dominant network brand. Thus, in addition to the confirmed RBS conversion, Visa seems likely to gain the WaMu portfolio and retain Wachovia's, which has about 10 million signature-debit cards. Excluding PIN-only ATM cards, Wells will have an estimated 25 million network-branded debit cards once the deal closes and will strengthen its hold on the No. 2 debit issuer spot behind Bank of America Corp. But the recent debit developments could be a mixed blessing for Visa, according to Adil Moussa, an analyst with Boston-based Aite Group LLC. That's because bank mergers give the top members of both Visa and MasterCard more scale, which translates into more power with which to extract price concessions. While not citing examples, Moussa says he's hearing reports of the networks giving members pricing based on the next transaction-volume tier they may be approaching, rather than requiring that they reach it first. “It's getting so bad right now in that pricing war that networks [are telling members] 'I'll put you at the next threshold'” as long as the member agrees to put most or all of its transactions on a particular network. “'The rate sheet plus one' I call it.” Visa, MasterCard, and publicly held payment processors acknowledge in their recent filings with the Securities and Exchange Commission the real or potential downward pressure on margins because of customer scale and competition. Size advantages aren't confined to debit-transaction pricing for bank buyers such as Wells and Chase, of course. “You get so much scale you're able to renegotiate your contracts with every single vendor,” says Moussa. “Also, you get your competitor's technology” and products, the better ones of which can now be rolled out to a much bigger customer base, he notes. One certainty is that Charlotte, N.C.-based Wachovia will enable Wells to fulfill its dream of becoming a coast-to-coast bank. “I've always thought Wachovia was a great fit for Wells because they are so complementary?geographically and otherwise,” payments-industry consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign tells Digital Transactions News by e-mail. “They have some great synergies, including serving small business, where Wells is doing some wonderful things, and Wachovia's been committed to as well. So this could be a real win for banking customers, and some industrial-strength competition to BofA and Chase in retail-banking services.”

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