MasterCard Could Catch a Break from Citi’s Deal for Wachovia

Citigroup Inc.'s government-assisted takeover of Wachovia Corp.'s banking assets, announced Monday morning, holds a debit card silver lining for MasterCard Inc. in a deal that otherwise symbolizes the radical reshaping of the banking industry after the mortgage meltdown. Citi is a predominantly MasterCard issuer while Wachovia is a big Visa issuer, which means that about 10 million Visa debit cards stand a good chance of becoming MasterCards. That's a hopeful possibility for MasterCard, which has lost one major debit portfolio in the past two weeks and could lose another as a result of JPMorgan Chase & Co.'s acquisition of parts of the failed Washington Mutual Inc. announced only on Friday (Digital Transactions News, Sept. 26). Any time a debit card portfolio changes hands, its network branding is up for grabs, with the presumption being the cards will be reissued on the acquiring bank's network. “It could be, theoretically, a good deal for MasterCard just like the Chase deal could be a good deal for Visa,” says Adil Moussa, an analyst with Boston-based Aite Group LLC. “We really don't know.” Citi, preoccupied with bigger matters such as the $42 billion in bad debt it will inherit from Wachovia, hasn't said yet what it will do with its new debit cards. A Citi spokesperson did not reply to a Digital Transactions News inquiry by mid-afternoon. A spokesperson for Charlotte, N.C.-based Wachovia says the bank has 11.1 million debit cards in issue, including 900,000 PIN-only ATM cards. The spokesperson didn't provide a network breakdown for the debit cards that have signature capability, but sources contacted by Digital Transactions News say the vast majority are Visa-branded. Citi, meanwhile, has an estimated 5 million signature debit cards outstanding, most if not all MasterCard-branded, and perhaps 2 million ATM cards. Both Chase, which hasn't announced its intentions for WaMu's estimated 12 million MasterCard-branded debit cards, and now Citi are in a position to extract concessions from the leading card networks. Visa and MasterCard have big incentive war chests?likely $1 billion apiece this year?to encourage issuance and transaction volume on their respective networks. “From Citi's point of view, it's a great way to get leverage and get some favorable pricing,” says Moussa. MasterCard today issued only a general statement saying, “MasterCard has a long-standing credit and debit relationship with Citi, the foundation of which has been our delivery of strong economic value to Citi and our development of innovative and convenient payment options for all of its cardholders.” Visa did not respond to a call for comment. Citi has about 100 million credit cards in circulation, most MasterCard-branded, while Wachovia, which only recently re-entered the credit card business, has an estimated portfolio of fewer than 2 million Visa cards. Earlier this month, MasterCard stalwart Royal Bank of Scotland Group Plc said it would switch its debit card portfolios in the U.S. and United Kingdom to Visa, though RBS's U.S. credit cards will remain MasterCards.