Debit Rivalry Heats up with National City, RBS Shifts to Visa

With National City Corp. and Royal Bank of Scotland Group Plc moving portfolios into its camp, Visa Inc. scored two big debit card wins over MasterCard Inc. this week in the bank card networks' ceaseless struggle to curry issuer and merchant favor. Analysts say the payment industry can expect to see more branding and processing-platform shifts as the card networks, now publicly owned and with big war chests, compete harder with each other?and with third-party processors?for the debit business of card issuers. “It's pretty clear Visa must be 'buying' market share by using rebates and incentives with those issuers [National City and RBS],” Gwenn Bézard, research director at Boston-based Aite Group LLC, says in an e-mail to Digital Transactions News. Earlier this year, Bézard published a report examining Visa and MasterCard's monetary incentives for financial institutions to issue cards and route transactions on their networks, and for merchants to encourage customer spending on one brand or the other. He estimated the networks had ponied up nearly $5 billion in such incentives between 2005 and 2007 (Digital Transactions News, Feb. 20). Both networks are on track to spend $1 billion or more apiece in 2008 on incentives, which can take the form of rebates on network assessments charged to members. MasterCard's second-quarter filing with the Securities and Exchange Commission shows “rebates and incentives” expenses of $505 million for the six months ended June 30, up nearly 17% from $433 million in the 2007 period. Visa has spent $862 million on what it calls “volume and support incentives” in the first nine months of fiscal 2008, which ends Sept. 30, up 142% from $356 million in the year-earlier period. But exactly how the incentives influence any one deal is rarely known by anyone other than executives of the winning bank, merchant, and network involved. Visa did not respond to several inquiries for comment. At Cleveland-based National City, group product manager Mark Ford says Visa's incentives “were not the primary driver” in the regional bank's decision to replace First Data Corp.'s Star electronic funds transfer network for PIN-based transactions with Visa's brands, Interlink for point-of-sale purchases and Plus for ATM transactions. National City also will switch its PIN-based debit processing from First Data to the Visa Debit Processing Service as part of the five-year deal. National City's contract with First Data is up at the end of 2009. The bank put the PIN-based debit processing and EFT network business of its 4 million cards up for bid and considered proposals from three processors/networks and two suppliers of in-house software, according to Ford. “We felt like Visa's total package served our needs best from an operational-processing perspective, a pricing perspective, and relationship-management perspective,” he says. One factor in going with Visa was Visa's ability to offer advanced risk scores in real time during the authorization process, and to send text-message alerts to cardholders, Ford adds. Yet National City still does considerable business with Greenwood Village, Colo.-based First Data. Last October, First Data said National City had agreed to a long-term extension of a contract under which First Data processed the bank's 5.6 million signature-based debit card accounts and 3.8 million credit card accounts. “National City remains an important and valuable customer for First Data and in fact, we recently renewed an agreement to continue to provide commercial card, consumer, and small-business credit card and signature debit card processing services,” a First Data spokesperson says via e-mail. “First Data will work closely with National City and Visa to ensure a smooth transition when our contract for PIN debit and terminal driving ends at the end of the 2009.” Meanwhile, Edinburgh, Scotland-based RBS, which owns Rhode Island-based Citizens Financial Group, will switch its MasterCard debit cards in the United Kingdom and U.S. to Visa, The Wall Street Journal reported this week. The number of cards involved was not immediately available. An RBS spokesperson in the U.K. refused to give much detail, but confirms the switch beginning in the second half of 2009 will cover MasterCard's PIN-debit brands, including the Maestro POS brand, which has a much larger presence overseas than it does in the U.S. “Visa Debit offers almost three times the global acceptance of Maestro, making 29 million point-of-sale outlets available to customers across the world, providing an overall improved service for our customers,” the spokesperson says by e-mail. RBS's U.S. credit cards will remain with the MasterCard brand. A MasterCard spokesperson says by e-mail, “the highly competitive nature of our industry drives migrations of our business from time to time. RBS and MasterCard enjoy a successful partnership and will continue to work together on global ventures.” He adds that Maestro remains “the debit program of choice for European bankers,” with 307 million cards in issue. In the U.K., MasterCard's debit offerings besides Maestro now include Debit MasterCard, with Clydesdale Bank and Yorkshire Bank both having announced recently that they will issue that card, the spokesperson adds. Paul Tomasofsky, a former executive with the NYCE EFT network who now heads up Two Sparrows Consulting LLC in Montvale, N.J., says one result of the competition for issuers' debit business could be reduced margins for processors and networks. “Sales folks from all the debit companies, be it Visa, MasterCard, NYCE, Star, Pulse, are out there banging on doors, trying to make the deals,” he says. “I think there's going to be price compression.”