Members OK PULSE Sale To Discover; Could Be Windfall For Some Texas CUs

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During a special meeting last week, members of PULSE EFT Association overwhelmingly approved the acquisition of one of the last surviving independent electronic funds transfer networks by Discover Financial Services, a unit of brokerage giant Morgan Stanley.

The 4,100 financial institution members of PULSE, including some 1,600 credit unions, will learn over the next few weeks how much of Discover's $311-million purchase price they will receive. All members will receive a minimum of $5,000 with the bulk of the money apportioned on a pro rata basis based on network usage between Jan. 1, 2004 and June 30, 2004. Several large Texas credit unions who were in on the ground floor of PULSE and were among the biggest users are expected to reap millions of dollars from the deal, according to officials familiar with the specifics.

'It's A New Day'

"It's a new day in electronic payments," exclaimed David Nelms, chairman and CEO of Discover. "We believe that the combination of PULSE's experience in debit and Discover's signature capabilities will enable us to offer additional choices in the important and growing debit market and offer a highly appealing alternative to serve financial institutions, merchants and consumers."

Under terms of the deal, Stanley Paur, who has run PULSE for the past 22 years, and his executive team will continue to manage the network. PULSE will also retain its brand, pricing and operating platform, at least for the near-term.

While just the latest of a flurry of mergers in the electronic payments markets, this deal has different structure than other recent ones because it combines Discover's existing electronic network, focused mostly on signature debit services provided to four-million merchants, with PULSE's broad network, which focuses on ATM and point-of-sale payments through financial institutions.

"Our combined entity will be able to provide financial institutions of every size and type with a full-service debit platform and a comprehensive suite of products, including credit, signature debit, PIN debit, gift card, stored value card and ATM services," said Paur.

Just The Latest Deal

The deal is just the most recent in a dizzying array of transactions in the EFT network arena. Last year, Marshall & Ilsley Corp's Metavante unit acquired the NYCE network from First Data Corp. That followed First Data's acquisition of Concord EFS and its Star Systems network. The year before, Fiserv acquired the ACCEL/Exchange network. In addition, over the past few years major EFT networks, like Most, Honor, MAC, Cash Station, Magic Line, and TYME have all been gobbled up by larger entities.

Though credit unions have profited from many of the deals-five credit unions and the CO-OP Network earned $92 million in Concord's 2001 acquisition of Star Systems-the PULSE deal could prove to be the most lucrative of all for credit unions, which are projected to earn as much as $100 million-about a third of the purchase price-from the deal.

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