In an effort to ease retailers' rage over rising interchange, Visa U.S.A. has begun requiring issuers to provide information about certain cardholders so that it can help merchants design direct mail campaigns.
Analysts said the strategy could put pressure on American Express Co., which until now could tout its closed-loop network, and the market intelligence it provides, as a competitive advantage.
The Visa Incentive Network will officially launch in June. The requirement to provide cardholder names and addresses, and data on their spending habits, became effective April 1 for banks that issue Visa Signature and Traditional Reward cards.
Jim McCarthy, a senior vice president at Visa, said the campaigns will be "extremely profitable" for merchants.
"The key is the targeting" using the database Visa has compiled, he said.
The San Francisco association pilot-tested the program in December with a large office supplier and plans to mail a category-wide promotion for a group of West Coast grocery stores in June, followed by two merchant-specific campaigns.
It has also signed on a national hotel chain, and the office supplier has requested another mailing, Mr. McCarthy said.
Howard Mason, an analyst at Alliance Capital Management LP's Sanford C. Bernstein & Co., said the program could give Visa an advantage over American Express.
"Amex has always had an edge in that they see what transactions cardholders are doing where," he said. "The Visa Incentive Network creates the same infrastructure that Amex's closed-loop network has."
Visa and MasterCard International both raised interchange rates recently. But Visa has "established that the price hikes are coming with added value," Mr. Mason said.
Kenneth Posner, an analyst at Morgan Stanley, said he had heard that card companies were trying to emulate a closed-loop network, but that "this is the first time that anybody credible has said they are actually making things happen. … It's the best story I've heard from a non-closed-loop company."
Moshe Orenbuch, an analyst at Credit Suisse First Boston Corp., said Visa is "adding the value that closed-loop networks say they can provide."
Visa must balance "multiple interests," and merchant discontent is probably the biggest issue facing the association, he said. But it also wants to "beat the pants off Amex."
Mr. Mason said Visa could do just that. "Visa has a strong case that it provides a superior value proposition to Amex," he said. Attempts to reach Amex for comment were unsuccessful Friday.
Mr. McCarthy of Visa acknowledged that the program might not quell merchant protests.
"The Incentive Network is really geared to the marketing side" of companies, he said. "The question is how do you get the CFOs - who view cards as an overall cost for the company - to sign on?"
Mr. Orenbuch said that no matter what the payment brands try to appease them, merchants will probably sue over interchange.
Asked about that possibility, Mr. McCarthy said: "Do I worry about these things? Sure I do. Does this strategy mean that everybody will be happy? No, but I'm not sure what can be done about that."
Visa is also testing with two large retailers an operational change designed to save stores time and money.
If cards cannot be processed automatically because of a malfunctioning magnetic strip, merchants will be able to type in the three-digit card validation number on the back of the card rather than take an imprint.
