Head of Nascent Chase Merchant Services Sees Opportunity, Keeps Mum About Specifics

The fledgling Chase Merchant Services operation may now have a boss, but that doesn’t mean the considerable industry curiosity about the JPMorgan Chase & Co. payments unit is going to be quenched any time soon.

Chase officials, beginning with newly appointed CMS chief executive Mike Passilla, are playing it close to the vest in answering questions about how CMS will interact with merchants and consumers. Announced late in February and slated to begin doing business with Visa-branded cards by the end of the year, CMS will make Chase both a card issuer and a merchant acquirer, leveraging such assets as the bank’s portfolio of nearly 50 million credit and debit cards and its ownership of Chase Paymentech, one of the country’s largest merchant processors.

“It’s really the combined assets of Chase that attracted me,” says Mike Passilla, the former Elavon chief executive who on Tuesday officially took over the top job at CMS. As well, the prospect of “bringing the consumer and merchant communities closer together” was attractive, he adds in one of the first interviews he has given since taking over CMS.

The bank plans to use its control of both issuing and acquiring data to bring rewards and offers to cardholders and to drive new business to CMS merchants. To that end, it has licensed a version of Visa Inc.’s VisaNet software to gain access to the network’s authorization, clearing, and settlement systems.

But Passilla, who has been on the job for only a matter of days, isn’t talking specifics about how CMS is going to exploit its closed-loop model, the first such effort by a bank of any size in decades. For example, it remains unclear how the recruitment and boarding of merchants will be split, if at all, between CMS and Dallas-based Chase Paymentech. He also shies away from projections of how many merchants CMS will enroll in its first year. “I’ve been here all of one week,” Passilla laughingly tells a reporter for Digital Transactions News. “You’re asking the questions I’m asking.”

He makes it clear, however, that merchant needs will be a top priority. Merchants have been unhappy with banks and the card networks for years over such issues as acceptance costs, and now the push to collect more consumer data for marketing purposes is driving an even bigger wedge between the two camps. The Merchant Customer Exchange (MCX), a retailer-controlled consortium based on mobile payments, was formed last year, for example, to gain greater sway over both acceptance costs and consumer information.

CMS plans to present what it hopes will be an equally attractive proposition to merchants, though again Passilla won’t give specifics. “The merchant community is very important to Chase,” says Passilla. “It’s one of the highest priorities to Jamie [Dimon] and Gordon [Smith] and therefore it’s very important to me.” Dimon is chief executive of JPMorgan Chase, and Smith is the bank’s chief executive of consumer and community banking.

Steve Mott, principal at industry consultancy BetterBuyDesign, Stamford, Conn., says CMS has a big opportunity ahead of it if it can exploit its advantages in both issuing and acquiring. For one thing, the card networks have piled on a number of fees in recent years to boost revenue, leading to considerable grumbling among both merchants and banks, he says. That could create an opening for a new network like CMS.

As a so-called three-party network, CMS will also be exempt from the Federal Reserve’s Durbin restrictions on debit card acceptance pricing, which could allow the Chase unit to fund consumer rewards with higher debit fees in some merchant categories. Passilla refuses to comment on pricing.

Three-party networks, of which the leading examples are American Express Co. and Discover Financial Services, combine issuing and acquiring under one roof. The Fed’s Durbin rules apply to conventional four-party networks like Visa and MasterCard Inc., which embrace consumers, merchants, and acquirers and issuers separately. Chase has agreed to a 10-year commitment to the Visa brand, which may have made the network more comfortable with the bank’s closed-loop strategy, Mott says.

But CMS will have to sell its advantages to what Mott calls a “skeptical” merchant community. That will require plenty of the specifics that Passilla is so far loath to disclose publicly. “It’s obviously an interesting and exciting opportunity,” Mott says. “But they’re awfully vague about almost everything.”