ATM&Debit News
BancorpSouth Inc.'s agreement last week to use Discover Financial Services LLC's Pulse EFT Network as its exclusive PIN-debit network processor is at least the third such pact announced in a month, and a growing trend in the banking industry.
Industry observers are divided as to whether such deals are troubling or simply the natural result of consolidation within the debit industry, as the number of networks declines and competition becomes more ferocious.
The multiyear agreement with BancorpSouth calls for Pulse to process transactions for the Tupelo, Miss., banking company's more than 325,000 debit cards.
The Houston-based network switched an estimated 123 million PIN-debit transactions in March 2006, making it the third-largest electronic funds transfer network, according to the ATM&Debit News EFT Data Book.
Michael Lindsey, a BancorpSouth senior vice president and the manager of electronic banking and delivery services, said that Pulse has supplied PIN point-of-sale debit card and ATM gateway services to the $13 billion-asset banking company since 1997. Before that, BancorpSouth routed debit card transactions through First Data Corp.'s network. The company serves debit cardholders in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee, and Texas.
This is the second exclusive deal Pulse has signed in a year. Last year, it reached a similar agreement with First Tennessee Bank in Memphis.
Other debit networks are pursuing similar strategies.
The NYCE Payments Network LLC of Marshall & Ilsley Corp.'s Metavante Corp. announced in April that it had agreed to be the sole provider of retail PIN-debit access for Intrust Bank in Wichita, Kan. NYCE, the fourth-largest EFT network in terms of switch volume as of March 2006, according to the EFT Data Book, is to switch all of Intrust's PIN-debit transactions in the United States, according to NYCE spokeswoman Kwiyoung Baumgarten.
Also in April, BECU, Washington state's largest credit union in terms of assets and members, signed an exclusive agreement with MasterCard Inc. to route all of its PIN-debit purchases over MasterCard's Maestro network. BECU in Tukwila, Wash., has members throughout western Washington, including 325,000 debit cardholders. The institution, formerly known as Boeing Employees' Credit Union, has ended relationships with the Plus, Star, and Accel Exchange networks, according to BECU spokesman Todd Pietzsch.
Exclusive processing agreements are "clearly a trend," said Lee Manfred, a partner at First Annapolis, a Linthicum, Md., consulting firm. "It's a natural evolution for an industry that started out very fragmented."
However, Ben Psillas, the president of the Allpoint surcharge-free EFT network, called the trend disturbing. "At one time, all of the EFT networks worked together with issuers and merchants to route transactions," he said, but this collaborative environment is disappearing.
Banks are under no obligation to sign exclusive agreements, he also noted.
Mr. Psillas and Mr. Manfred agreed that the industry reached a turning point when Visa U.S.A. changed its PIN-debit processing strategy eight years ago. Visa's Interlink debit network had been the switch of last resort, Mr. Psillas said; all transactions were switched over regional networks, then routed to either the Visa or MasterCard networks. But Visa and MasterCard are now acting as networks of first choice for financial companies, Mr. Psillas said. Interlink switched 330.8 million transactions in March 2006.
Visa is gaining market share by offering banks and credit unions financial incentives to sign exclusive agreements, Mr. Psillas said. "What we're seeing with BECU, Intrust, and BancorpSouth is the trickle-down effect caused by Visa and MasterCard" trying to gain share, he said.
Mr. Manfred said Visa has been "very aggressive." Visa did not respond to a request for comment.
Other debit networks also are paying financial incentives.
Pulse spokesman Steve Sievert would not give financial details of the agreement with BancorpSouth.
But Mr. Lindsey said that Pulse "compensated" his company for its exclusive agreement, though he would not say how much. "We have had a good working relationship with Pulse. We were happy with their pricing and service. We weren't afraid to put all of our eggs in one basket," he said.
Intrust Bank and BECU officials said their exclusive agreements will provide better service.
