CARL PASCARELLA, 51, became president of Visa U.S.A. in September 1993, after about a decade as head of the association's Asia-Pacific region. He was pan of a wave of top-management changes that soon thereafter included the appointment of Edmund Jensen as chief executive of Visa International

Mr. Pascarella, like Mr. Jensen and others who have held Visa's top jobs, also brought line banking experience. His previous employers included Bankers Trust Co. and the defunct Crocker National Bank of San Francisco.

In this recent interview with American Banker senior editor Jeffrey Kutler, Mr. Pascarella looked ahead at the way banks will manage their customer relationships, the role of Visa in those relationships, and the new technologies that might help them.

YOU HAVE MENTIONED MANY TIMES THAT THE NOTION OF "RELATIONSHIP" IS CRUCIAL TO TIlE BANK CARD BUSINESS. THIS HAS NOT ALWAYS BEEN SO. WHAT CHANGED?

Nothing has really changed about the credit card business. It was not built on relationships, but rather on brand identity and mass marketing.

Banks are feeling more and more pressure today on their core businesses. People are demanding more. Technology is moving forward, and customers want to do business when and how they want to transact it.

Many banks have bill payment services, but they are often sneaker brigades. They are peopleintensive, they make errors once in a while. But when customers rank their services, they say, don't take this one away. Smaller banks may be able to do this better than the big, bureaucratic organizations. They can do it on a smaller scale and with relatively fewer dollars committed.

Driving Visa's involvement is that for a long time we were chugging along with a nonrelationship product. The credit card is a brand product, sold by mass mailing, and produces revenue based on fees and interest rates. But a whole other side of banking is based on demand deposit accounts and business accounts--on relationships. We are getting involved because the consumers are demanding more. Automated teller machines were a first step, allowing customers to use a card and get better service than in a branch.

Now we have personal computers and PDAs [personal digital assistants], creating a whole lot of interest in new types of delivery mechanisms. When the market is ready, we had better be ready. Because if we fall behind the curve, there is nothing to keep the retailers, processors like Nabanco, or anybody else from providing that service. The card or the banking relationship isn't completely necessary to transact that business.

We have a telecommunications infrastructure, and perhaps the access device, in the form of a card. But the whole role of our business, what we can provide, is going to change. The question we face is, what does the bank need to solidify its relationship with the customer, and what role are we going to play in the process?

WHAT DOES ALL THIS SAY ABOUT THE TRADITIONAL CREDIT CARD BUSINESS AND THE WAY YOU APPROACH IT? IS IT MATURE, AND LESS IN NEED OF YOUR ATTENTIONS AS THESE OTHER THiNGS BREAK?

There is still progress to be made by the credit card. We gauge ourselves against PCE-- personal consumption expenditures and there is still a lot of them

to capture. There are various kinds of taxes, fines, health care, recurring payments not paid by check, which we are not involved much in.

Also, look at demographics. Bank cards' penetration in the United States is something like 73% of households. In minority groups--blacks, Hispanics, Asians--it's more like 23% to 25%. Generation X is around 35%. There is a lot we can do to penetrate markets, including those seen as not creditworthy, with a secured card.

I don't think we are saturated. We haven't done a good job, as an association, to help banks focus their products or advertising or promotions for the untapped opportunities that are out there.

THERE'S STILL MONEY IN IT-- THAT'S WHY THEY'RE MARKETING NATIONALLY.

Absolutely. It's nonrelationship; the consumer is buying the brand, not the bank. There are banks that don't even put their own names on their cards. You'll see this as long as there is fee income, like Citibank gets from its American Airlines Advantage card, or margins are healthy enough on interest rams. But there will come a point of diminishing returns. Consumers' propensity to revolve their balances has a certain elasticity, and when the limit is reached, issuers will lose interest income.

As we see it, it is crucial to keep the bank in the middle of the process. For example, the bank can send out a floppy disk, or some kind of a device, that serves as the terminal activator for home banking. Put it in, and your bank welcomes you to the world of home banking. From there you can build in mortgage loans, car loans, whatever, with a more consistent level of service than anything we have been accustomed to historically. In this new world, all one's banking can be done on an ATM. The functionality is there--we just haven't used it, and of course there is a whole customer education process to go through.

HOW MUCH DO YOU THINK ABOUT EMPHASIZING THE CARD AS AN ACCESS DEVICE FOR THESE NEW DELIVERY SYSTEMS? DOESN'T IT SEEM A NATURAL TIE-IN AND LINK BETWEEN A BANK AND ITS CUSTOMER?

Yes. That's also true of the electronic purse, which contains stored value that can be replenished or reactivated at home. I firmly believe the card will be central. The question is, will that access device be a Visa card that doesn't have a bank issuer's name on it? If a customer has a strong relationship with, say, Bank of America, does First Chicago have a prayer of signing that customer up for a relationship card? The average consumer carries several cards; which one does she pick as a relationship card?

WHAT IS THE CONNECTION BETWEEN THIS TALK ABOUT THE RELATIONSHIP CARD AND THE CARD WITH COMPUTER CHIP INSIDE--THE SMART CARD?

There is no room left [to add encoded data] on the magnetic stripe. Where will the informalion about your relationship with a bank reside? And will you need to communicate with a host computer on every transaction? If you don't, then why have the mag stripe, which predicates going online?

Telecommunications costs are coming down. But you want the entire relationship accessible by the customer or its bank on an interactive basis. If the customer wants to access information or work on it, it would seem that the best solution is to have as much information downloaded as possible to the point of transaction. To me, that is the major reason for the chip. Plus, you can get much more utility on the card.

We may still be a ways from the one-card concept, but if I have a card that I can use for low-value transactions (electronic purse), that accesses my transaction balance (debit card), that accesses my line of credit (credit card), that's a lot better than having to go on-line to the host on each transaction.

Security is also a major issue here. Magnetic stripe security, at its best, is skimmable. We are a bit ahead of the curve with CVV [the Card Verification Value antifraud technique], but not much. The combination of added utility--the stripe has limited functionality--and security will drive the chip card.

THEN THIS IS LARGELY A TECHNOLOOY ISSUE?

If you look at what you want to do in home banking, the amount of information on a chip, and what you want to access, that all makes the technology seem that much more logical. But without a change in the distribution network, the chip card cannot maximize its potential.

SO THIS IS A LONG-TERM PROPOSITION?

How long did it take to get consumers really comfortable with ATMs? It took five to seven years for the machines to really prolifcrate. Today there is a much greater propensity to use or experiment in electronics than there was in the 1970s when ATMs were in the embryonic stage. If we can get out and educate the consumers, and give them enough value and reason to use a chip card, it can go. If we make them come into the bank for it, it will be more questionable. The relationship card has to have utility value, it has to be value-added.

The likes of Merrill Lynch, Dean Witter, American Express and IDS are out looking for financial relationships. If the banks don't start reacting to that, and get ahead of the curve, there is nothing to keep those relationships in the banks. Protecting the relationship is what we are trying to do.

VISA IS ACTIVELY PURSUING THE ELECTRONIC PURSE, IN PART THROUGH AN INTERNATIONAL CONSORTIUM DISCUSSING STANDARDS. DOES THAT FIT INTO THE PROGRESSION OF LEADiNG THE BANKS AND CONSUMERS TOWARD THAT RELATIONSHIP CONCEPT?

Yes, especially if the bank is at the hub of it. I've seen and been working with stored-value cards in Asia for 10 years, and the biggest problem always was knowing where the bank fit in. You can put your money in a slot and get a subway card or a telephone card. When you add the idea of putting the card in an ATM or home terminal to reenergize it, the bank has established a role for itself. That is an important step, perhaps a first step in this process---establishing a utility value, without cash, in a market that has historically been cash-oriented. That's the definition of value-added.

I feel strongly about storedvalue cards because I lived with them for 10 years and know they work. People will stop using money. There are phones in Japan that only take cards. You can change consumer behavior by giving them an added value.

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