Suddenly, everyone in the credit card industry seems to be talking about duality - a contentious issue that was supposedly resolved long ago.

Dual card issuance - banks offering both the MasterCard and Visa brands - became possible in 1975, when Visa U.S.A. dropped its opposition to allowing Worthen Bank and Trust Co. of Little Rock, Ark., to become a MasterCard member.

Dual membership helped fuel the explosion of credit cards and the considerable profits that ensued. "We've lived with [duality], and we've lived with it pretty successfully," said Philip G. Heasley, senior vice president of product development at First Bank System Inc. in Minneapolis.

Visa Leans to Nonduality

But now that Most credit-worthy consumers who want credit cards have them, MasterCard and Visa are turning their attention to the newer competitive battlegrounds of debit cards and business-oriented products. The old arguments over duality are being heard again.

The larger bank card association, Visa, has been edging closer to a reversal on duality, according to some analysts.

In 1990, Visa enacted a prohibition on duality that it said is consistent with a consent decree that year in an antitrust case that banned the two associations from introducing a joint debit card known as Entree.

According to the rule, a bank holding company that wants to be in a national on-line debit program has to make a choice between Visa's Interlink or MasterCard's Maestro, said Pete Gustafson, senior vice president of deposit products at Visa International.

Pledging Allegiance

In February 1991, Visa passed a similar rule with respect to the off-line products, MasterCard Debit and Visa Check Card.

Visa requires a holding company that finds itself offering both brands because of a merger to declare allegiance to one brand. The banking company then has up to five years to phase out the other program.

In October 1993, the Visa board passed a new bylaw imposing nonduality on its new line of commercial products - including a procurement card, a travel and entertainment card, and a card designed for small businesses.

Hammering Out the Details

Richard H. Hagadorn, senior vice president of credit products at Visa International, said details of the rule are still being worked out.

"The board didn't intend for that to be punitive in any way to any members who invested in the commercial market prior to the announcement," he said. "We're not asking the membership to decide tomorrow, the next day, or next year for that matter."

Mr. Hagadorn said the policy would recognize the procurement, T&E, and small-business segments as "distinct, non-overlapping arenas for brand competition."

Some experts say the San Francisco-based association expects to benefit if banks are forced to choose between its products and MasterCard's. The thinking is that most banks would opt for Visa, the brand that already controls nearly two-thirds of the market.

Consumer Sector

The same reasoning ought to apply to consumer cards, these observers say. But the question of overturning duality in consumer cards is a tricky one.

Visa International president Charles Russell, among others, has said that, in retrospect, the original duality decision was misguided. Insiders say Mr. Russell felt frustrated because duality sometimes allowed banks to play one association against the other.

H. Robert Heller, who resigned in September as president of Visa U.S.A., reportedly argued against a ban. He said the strategy could backfire, because banks might align with MasterCard, which had gained some momentum by licensing some fast-growing cobranded cards with nonbanks.

Mr. Heller's departure may have tipped the balance toward a duality ban.

A straw poll at a recent Visa board meeting came out at 13-to-12 in favor of barring dual issuance, informed sources said. Charles Russell and Carl Pascarella, who replaced Mr. Heller as Visa U.S.A. president, were said to have voted in favor of the ban.

The association - which does not disclose details of board meetings - is saying publicly that it has no intention of turning back the clock on duality in consumer cards.

"We're not going to roll back duality on the regular credit card side of the business," Mr. Pascarella said. "What's done is done. It would be very difficult for people not to issue dual [brands]. The very best we could hope for would be a long-term phase-out, and even that may not be feasible."

Marketplace Forces

Mr. Pascarella did not deny that the board discussed duality but said it would not be his style to try to overturn duality by staging a straw poll.

"If I force nonduality, it will be in the marketplace. I'll run MasterCard off the cliff ... because Visa is" the better product, he said.

Mr. Pascarella drew a distinction between marketing credit cards to consumers - who like to have a choice - and marketing the other kinds of cards to corporations and checking account holders. Banks want to lock businesses and demand deposit customers into a multiservice relationship that should include a single card brand, Mr. Pascarella argued.

Taking the Lead

And Mr. Pascarella shrugged off questions as to whether the rules will be accepted by bankers accustomed to duality, saying, "Somebody has to provide a position of leadership in the business."

The Visa position forces an "unanswered question," said Mr. Heasley at First Bank System. "If we're willing to accept that paradigm for business cards, why not accept the paradigm for personal cards?"

Visa's denials notwithstanding, the association's rules on debit and commercial cards are "the first step to reintroducing exclusivity" in consumer credit cards, said Lloyd Constantine, a partner in the New York law firm of McDermott, Will & Emery.

Visa was "dragged into duality" in the first place, said Mr. Constantine, who was the assistant New York attorney general who led a multistate task force in the antitrust suit that, when settled, prevented MasterCard and Visa from going ahead with Entree.

"I think they believe they are the better program," Mr. Constantine said of Visa.

"Although Visa is bigger than MasterCard, [Visa officials] believe they would do even better than now" if banks had to choose, said Mr. Constantine, who represented Visa for a short time in its case to bar Dean Witter, Discover & Co. from joining the association. "They feel to a certain extent that MasterCard gains market share through duality."

The recent decision by MasterCard to license a cobranded card for Dean Witter and NationsBank Corp. will hasten Visa's change on duality, Mr. Constantine predicted.

The MasterCard action will "drive a wedge" between the associations, he said. While MasterCard is appeasing Dean Witter, he said, Visa remains embroiled in a lawsuit to prevent that company - which issues the Discover card in competition with the bank card industry - from directly issuing Visa bank cards. Visa is appealing Dean Witter's previous victory in a lower court.

Spur to Innovation

Visa and Mr. Constantine say exclusivity in the new products will promote competition and innovation as the associations compete for the loyalty of banks.

MasterCard, by contrast, has been working to encourage debit card duality. It has passed rules, contrary to Visa's, that allow dual issuance within the same holding company.

MasterCard argues that the Visa rule goes far beyond what is in the consent decree that resulted from the Entree suit, and is tantamount to Pepsi telling a supermarket it can't also sell Coke.

MasterCard officials say a holding company might want to decide which brand to offer in a particular market, based on what other banks there already offer. "We have to allow members the choice to promote either brand, whatever they feel is most competitive," said Arthur D. Kranzley, president of Maestro U.S.A..

Multiple Choices

Duality, whether in consumer cards, debit cards, or business cards, allows banks to stock their shelves with a variety of products, said Peter S.P. Dimsey, the president of MasterCard's U.S. region.

"I haven't found one member who'll look me in the eye and say, |It's in my interest to issue just one kind,'" Mr. Dimsey said. "Visa's saying business products are somehow different has no logic at all."

Mr. Dimsey dismissed Visa's move as a "self-serving" attempt to protect its market share advantage at a time when MasterCard has been gaining on Visa for the first time since the late 1970s.

Mr. Hagadorn of Visa denied making a play for market share, since neither association has yet achieved dominance in the emerging market for business cards.

Help for Business

Duality is popular with association members like William J. Moore, who heads SunTrust Banks Inc.'s bank card unit, who say that it helps them issue more cards.

The multibank company's portfolio "is split almost 50-50 between MasterCard and Visa," said Mr. Moore, president and chief executive of SunTrust Bankcard. "Over a four-state area, we have customers who are very loyal to one brand or the other. We have found that both have special niches they fulfill."

Mr. Moore said he has voiced his objection to the Visa rule that, if enforced, would require him to choose between MasterCard and Visa for an off-line debit product. But he also said the five-year phase-in could give Visa flexibility to let the rule slide if it proves especially unpopular.

"Who knows what's going to happen five years from now?" he said. "Five years ago, I wasn't even involved in credit cards."

Strategic Considerations

Some bankers are moving to comply with the rules while insisting that strategic considerations, rather than the rule, are motivating them.

At First Chicago Corp., for example, several hundred thousand automated teller machine cards that can be used as off-line MasterCard debit cards will be converted next year to the Visa brand.

The new cards will function as off-line debit cards where Visa credit cards are accepted, as on-line debit cards where Intlerlink is accepted, and as automated teller cards at machines in the Cash Station regional network.

James M. Grant, senior vice president of First Chicago's flagship, First National Bank of Chicago, said it decided to phase out its MasterCard debit cards for the sake of simplicity. The bank had already decided to issue Visa's Interlink, because it is more widely accepted in the United States than Maestro.

But he added that he likes the use of the double-ring symbol on all of MasterCard's brands, and said the choice of Interlink could be subject to review.

No Preference

Mr. Grant pointed out that none of his customers has ever requested one brand of debit card over the other.

While MasterCard will lose some market share for its off-line debit program, the First Chicago cards will function at machines in Cirrus, MasterCard's national ATM system.

First Chicago also could be affected by the policy on procurement cards.

Its cash management division currently offers MasterCard procurement programs. Officials say it is too early to say what the bank might do as a result of Visa's nonduality rule.

NationsBank Corp., which also has issued MasterCard procurement cards, is gradually replacing them with Visa. But a source said the decision was made prior to Visa's anti-duality steps. Officials apparently felt the Visa label would attract more business and that it would be costly to maintain systems to support both brands.

At First Bank System, which has been a pioneer in offering Visa business cards, officials earlier this year were reported to be considering adding a MasterCard to their business product line. But they won't be doing that under the new Visa rule.

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