Japan's Biggest Card Issuer Signs with EDS

In a move to centralize its U.S. operations, Japan's largest credit card issuer has signed a transaction-processing agreement with EDS Corp.

EDS, a unit of General Motors Corp., will act as a hub through which the payments of the Tokyo-based card issuer JCB International Credit Card Co. can be authorized and cleared in the United States. EDS will provide transmission links among U.S. merchants, their banks, and JCB's central U.S. offices.

JCB has been moving gradually in recent years to establish a U.S. presence. It is the fourth-largest credit card concern in the world, with more than 20 million cards in circulation.

The size of its EDS contract was not disclosed.

Little Threat to U.S. Issuers

While the agreement will help JCB increase its merchant base, industry observers expect it to have little effect on the competition for American credit card customers.

JCB has plans to charter a financial institution to issue cards in the United States, but the vast majority of current JCB cardholders are Japanese citizens. The EDS processing deal is not expected to change that mix significantly.

However, the transaction volume that EDS will gain as a result of the agreement could have a favorable effect on future pricing of transmission and authorization services to U.S. businesses that accept the card.

"The issue of competition from JCB is far less significant than the possible reductions in processing costs from improved economies of scale," said H. Spencer Nilson, publisher of The Nilson Report, a Los Angeles-based newsletter.

Recognition on the Rise

In recent months, JCB has been raising its profile in the United States. Several banks - including Valley National Bank in Phoenix and BankAmerica Corp.'s Bank of America in San Francisco - have agreed to accept JCB deposits from retailers who accept the card. The processing contract will not affect the banks' merchant business, EDS officials said.

The estimated 150,000 U.S. merchants that honor the JCB card will continue to clear their transaction drafts through their financial institutions. EDS, which will authorize the sales, will later transmit transaction data in batches overnight to JCB and the merchants' banks for settlement.

EDS currently maintains a computer link with JCB's U.S. subsidiary in Los Angeles, but it plans to link its authorization service with the main office in Tokyo sometime later this year.

JCB International Co. plans to begin marketing cards to U.S. citizens as soon as its bank can be established, but industry watchers do not expect the company to be a significant threat to U.S. card issuers in the near future.

At present, JCB cardholders account for only 2.7% of all general purpose credit card spending worldwide, according to The Nilson Report. By contrast, charges on Visa cards represent nearly 50% of total spending.

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