By using a joint venture for credit card processing, Bank of Montreal and Royal Bank of Canada have found a way to skirt Canadian card rules that bar banks from issuing both MasterCard and Visa cards and processors from handling both brands.
Moneris Solutions Corp., which was set up in December in Toronto, can process both Visa and MasterCard because of the 50/50 partnership between its two owners. Bank of Montreal issues cards and acquires merchants under the Visa brand, while Royal Bank of Canada does so under the MasterCard brand.
In accordance with the Canadian bank card associations nonduality bylaws, the banks are not combining their card portfolios. They are simply funneling their merchant processing business to Moneris.
The new processing entity, which inherited from its parents about 300,000 merchant customers in Canada and 30,000 in the United States, says it is designed to make life easier for Canadian retailers, who normally have to sign two processing contracts in order to accept both Visa and MasterCard.
By combining the two businesses, we intend to provide a one-stop solution for all merchants, said James Baumgartner, the card processing veteran who this month was named president and chief executive officer of Moneris.
The joint venture is intended to create economies of scale in transaction processing and to trump the U.S. processors, which are increasingly interested in picking up business in Canada but have not found a way to skirt the nonduality bylaws.
First Data Corp., the largest card processor in the United States and around the world, processes only MasterCard transactions in Canada. It set up its Canadian processing subsidiary, First Data Loan Co., only last year.
The company has a reciprocal referral relationship with TD Canada Trust, a Toronto-Dominion Bank subsidiary that processes Visa transactions. When a First Data merchant handles a Visa transaction, it is routed to TD Canada, and vice versa.
Eula L. Adams, executive vice president of First Data, said his company has talked about [Moneris] internally, and the management has interpreted the creation of the Moneris as a tacit agreement between Visa and MasterCard that they are now allowing processors to put both brands together for more efficiency.
Visa and MasterCard probably would have no big objection if we went down a similar path, Mr. Adams said. If First Data created a venture like Moneris, it would seek out a more formal partnership with TD Canada, he said.
Derek Fry, president of Visa Canada, said the associations rules have not changed. However, Moneris is able to process both Visa and MasterCard because it is not a member of either association, he said. They act as an agent for both banks.
Visa has no problem with the joint venture as long as Royal Bank remains responsive for all of the Visa transactions, and the bank does not lean over and get involved with the governance of MasterCard, and vice versa, Mr. Fry said.
Mr. Baumgartner said bank processing arrangements normally force merchant customers to work with two companies and receive two monthly statements, while merchants that work with Moneris only get one. The joint venture handles all merchant processing functions from soup to nuts, including installing and programming terminals to the merchants specifications, fraud review, settlement, handling disputes, and chargebacks, he said.
A native of Minneapolis, Mr. Baumgartner has more than 12 years of experience in merchant and card services. Before joining Moneris he headed J.P. Morgan Chase & Co.s commercial payments division, which was known as First USA Financial Services Inc. until Chase Manhattan Corp. bought it last year from Paymentech Inc. From 1994 to 1996 he had worked in the commercial payments division of U.S. Bancorp.
The combination of the two banks merchant processing services makes Moneris the sixth-largest merchant processor in North America, according to Mr. Baumgartner. Bank of Montreal, which offers processing services in the United States, intends to use a Chicago subsidiary, Harris Bank Merchant Services, to expand its U.S. clientele, he said.
Mr. Baumgartner described the creation of Moneris as a proactive move for the customer, and he said his goal was to be able to respond quickly to customers.