In a deal that will provide both direct and indirect benefits to credit unions, Discover Financial Services announced last week it is acquiring PULSE EFT Association, one of the last remaining regional electronic funds transfer networks.
The $311-million sale of PULSE will prove lucrative to the 4,100 financial institutions, including more than 1,600 credit unions, that own the network, with credit unions, especially those in PULSE's core Texas market, expected to earn millions of dollars in their share of the purchase price.
Stan Paur, president and CEO of PULSE, said the deal will expand the online payment options for credit unions because Discover, a unit of Morgan Stanley, already offers credit card and signature debit services through more than four million merchants. The terms of the deal will also provide some price protections for credit union and bank members, he said. But he would not elaborate.
"Within the past few years many financial institutions have told us of their desire to see a full suite of products," said Paur. PULSE members, he said, regularly cite expanded product and services option above the goals of pricing and ownership interest in a payments network.
The combination of both credit and ATM/debit networks, according to Paur, will be unique in the payments market. "This is truly a defining moment for the electronic payments business," he said.
John Tippets, president of American Airlines FCU and a member of the PULSE board of directors, agreed the concept of choice, regarding online payments products, was a driving factor in the deal. "You know, we're always talking about choice, consumer choice; well this is one more way for us to expand consumer choice," said Tippets.
The deal is just the most recent in a dizzying array of transactions in the EFT network arena. Earlier this year, Metavante acquired the NYCE network from First Data Corp. That followed First Data's acquisition of Concord EFS and its Star Systems network. And last year, 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.
But while credit unions have profited handsomely 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 is expected to be the most lucrative of all for credit unions, which are projected to earn as much as $100 million from this transaction.
Paur said the credit union shares will not be known definitively until a proxy statement on the deal is prepared and provided to PULSE owners over the next few weeks.
But the biggest credit union users of the network, those in the San Antonio market, are expected to be the biggest beneficiaries under a formula based on revenue generated through the system.
Those credit unions and bank owners of the system must still approve the deal in a vote, expected in the next 40 days.
While consolidation in the EFT industry is believed to have been a major driver of the deal, perhaps the major factor was the recent decision by the U.S. Supreme Court not to review a lower court ruling that exclusionary policies by Visa and MasterCard preventing member issuers from issuing competitors' cards violated federal antitrust laws. Following the Supreme Court's action, both Discover and American Express filed suit against the two card associations asking for billions of dollars in damages because the exclusionary clauses prevented credit unions and banks from doing business with them.
Tippets acknowledged that the Visa and MasterCard ruling was obviously a force in Discover's offer to acquire PULSE. "Discover has been trying to go into this market for a long time but had been blocked by Visa and MasterCard," he said.
Discover, which operates one of the largest credit and debit card networks, plans to operate PULSE separately with Paur, who has managed it for 22 years and the rest of the management team, for the time being. Discover will also create an industry advisory group, which will include credit union representatives, that will influence policy of the network.
The deal must still obtain regulatory approvals from the Federal Trade Commission and the U.S. Justice Department, which will review it for antitrust issues.
