Battle of Bank Profits Rages Between MasterCard, Visa

NEW YORK -- A new battle is flaring between MasterCard and Visa over the profits they deliver to their member banks.

The skirmish was touched off last week when MasterCard International president Alex W. Hart reiterated a claim that banks can make up to 30 basis points more on their MasterCard credit card outstandings than on Visa cards.

The purported profitability advantage was a major theme of Mr. Hart's "state of the association" address to the American Bankers Association's annual bank card conference in Dallas.

H. Robert Heller, president of the larger Visa U.S.A. Inc., quickly retaliated. Presiding over a panel of Visa executives, the former Federal Reserve Board governor claimed that Visa surpassed MasterCard in four out of five "key measures" of profitability.

Data Sought

The debate takes the bank card associations into a new realm of subtle distinctions as they battle for the marketing allegiance of the nation's banks. Mr. Hart asked his members to separate their MasterCard and Visa outstanding and learn the profitability of each.

Though most banks belong to both card groups, more than 135 million consumers in the United States carried Visa cards at year-end 1990, compared with 89 million that held those issued by MasterCard. Visa's U.S. sales volume reached $158 billion, compared with MasterCard's $93 billion.

Historically, the two organizations have fought it out over broad numbers such as total sales-figures and market share.

Complicated Question

The latest frontier, credit card profitability, is influenced by many factors.

These include membership dues and service fees that banks pay, interchange rates that determine fees they receive from merchants that accept the cards, balances outstanding and finance charges paid by cardholders, and portfolio delinquency rates.

As bankers become more sophisticated about the numbers and card issuance reaches a saturation point, these factors become more significant.

The complexity of the components, however, make it difficult to declare one system more economical than the other. Moreover, few banks break down their card profits by association.

Mr. Hart, nevertheless, is promoting MasterCard as a prestige family that has lower chargeoffs and delinquencies, higher revolving balances, and higher interchange rates.

Measurements of Status

And at last week's conference, Mr. Heller -- in his maiden appearance since being named president of Visa in February -- listed four measurements of profitability in which his organization claims superiority over MasterCard.

"Our service fees are half of what MasterCard charges you," he said in an opening sally. He was referring to charges that pay for administrative, promotional, and other operational costs.

Next, Mr. Heller touted the growth of Visa accounts, claiming they are expanding 20% to 30% faster than at MasterCard. Furthermore, he added, Visa cardholders charge more on them than do MasterCard holders.

As for delinquencies, Mr. Heller conceded that Visa credit quality is worse than MasterCard's in terms of percentage of dollars outstanding. However, he said, as a percentage of sales volume, Visa's delinquency rate is lower.

Visa and MasterCard also battled on the technology front. Mr Hart claimed that MasterCard's system for authorizing consumer transactions at stores and restaurants is more sophisticated than Visa's. About 80% of MasterCard transactions link a retailer's bank directly to a card-issuing bank before authorizing a sale, he said. At Visa, the number is around 50%.

PHOTO : FLARE-UP: Profitability claim by MasterCard president Hart, left, has Visa president Heller fuming.

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