NYCE’s New President Optimistic Despite Fierce EFT Competition

As he prepares to take the reins from Dennis F. Lynch as president of the NYCE electronic funds network, Steven A. Rathgaber says the Montvale, N.J.-based network's acquisition by Milwaukee-based Metavante Corp. will help it weather what is probably the fiercest competition the online debit business has ever faced. “Dennis has left the network in extraordinarily good shape, with all the ingredients in place for moving forward,” says Rathgaber, who has been chief operating officer at NYCE since 1997 and officially takes over Sept. 1. “But the marketplace is in a state of change. We're all competing much more aggressively than we have in the past.” NYCE, the second-largest EFT network in the country, will look to Metavante's base of banking clients for core- and third-party transaction processing to help beef up the network's card base. NYCE claims 2,150 members, including nine of the 15 biggest issuers of debit cards based on personal identification numbers. But of the approximately 1,000 financial institutions that rely on Metavante's services, only about 10% are currently NYCE issuers, Rathgaber points out. By becoming part of Metavante's menu of services for these banks, NYCE hopes to significantly build out its issuer base beyond its traditional stronghold in the Northeast. But NYCE will also have to defend its own position, particularly among the major banks that account for the bulk of its volume and that owned more than one-third of the network until Metavante closed its acquisition in July. Some industry observers speculate these banks, which include J.P. Morgan Chase & Co., Citigroup Inc., HSBC Holdings PLC, and Bank of America Corp., may defect to networks like Star Systems Inc. or Interlink with the right incentives. Neither NYCE nor Metavante will comment on whether the banks have made any commitments to NYCE in the wake of the Metavante acquisition. Rathgaber, while conceding that all the national networks are “fighting for transaction share” with unprecedented intensity, says he's “confident we'll continue serving the majority of these institutions over time.” He points to the network's competitive interchange-fee structure and its oversight board, a group of 13 member banks that Metavante has kept in place and that has veto rights over changes in operating rules. This group, which meets twice a year, will help reassure members the network remains a creature of the members, Rathgaber argues. He says NYCE is already looking into expanding the board. “Metavante is a very [financial-institution]-centric service provider,” he says. “They're very comfortable with the oversight board.” Metavante paid $610 million to buy NYCE from First Data Corp., which held a 64% interest in the network, and the four banks. FDC was forced to sell NYCE under the terms of an agreement the Denver-based processor made in December with the U.S. Department of Justice related to its purchase of Concord EFS Inc. and its Star network. Now, Rathgaber says, the prospects for growth at the network are better than ever. Had FDC kept NYCE and tried pairing it with Star, those prospects would have been dimmer, he says. “It's hard for me to know how NYCE would have grown much in that model,” he says.