More Star Defections to Interlink Coming, says TowerGroup

Expect more big banks to follow Wells Fargo & Co. and Wachovia Corp. in switching their debit processing business from Concord EFS to Visa, according to an industry analyst. John Gould, director of consumer credit research for TowerGroup, a payments research company, says in the process of moving their debit-processing business, those banks are removing the Star debit logo from their card and keeping the Interlink logo. That is significant because Interlink pays those card issuers on average 33% higher interchange, Gould says. Concord owns the Star network while Visa owns Interlink. Under the current scenario, most cards had both the Star and Interlink logos and it was up to the merchant acquirer to choose how to route the transactions. Many acquirers then routed the transactions to Star because of the lower cost to the merchant. But, by switching to Visa and removing the Star logo, the banks are guaranteed they'll collect the higher rates. “Because Interlink offers higher interchange over Visa, I expect a lot more banks, particularly those whose executives are on the Visa board, to emulate Wells Fargo and Wachovia–read that as Bank One,” Gould says. Exacerbating the pricing difference for banks right now could be recent strategic networking moves by First Data Corp., which is attempting to acquire Concord, though that merger is being challenged by the Justice Department. These moves may cause the banks, which own Visa, to be less likely to want to do business with Concord. Such moves include a proposal for First Data to create a closed-loop processing network where transactions could be routed directly from a merchant whose transactions are processed by First Data to an issuer that is also a client of First Data, thereby bypassing Visa or MasterCard altogether.