MasterCard International has completed installation of its modernized network for transaction processing in the United States, Canada, and Singapore.

The system, developed with AT&T Solutions, is slated to be rolled out in other Asian, Latin American, Middle Eastern, and African markets by late 1998. It also provides a gateway to European members through MasterCard's Belgium-based affiliate, Europay International.

In the form of a virtual private network, or VPN, the system is replacing the packet switching infrastructure that MasterCard's Banknet had been relying on.

The dependence on an outside vendor was a radical change for a company that previously insisted on internal network control. But MasterCard said it will retain that control while gaining access to newer and faster technology and the flexibility inherent in what senior vice president Arthur Ahrens called "a managed, rather than an outsourced," arrangement.

The VPN has the advantage of "bandwidth on demand." Capacity can expand or contract with volume. Banknet had to be built for peak-season loads, meaning up to 30% of its processing power went unused during nonholiday seasons.

"In preliminary U.S. comparisons between the virtual private data network and MasterCard's previous network, we have reduced transaction time by 0.4 second," said Mr. Ahrens, senior vice president of global technology and operations. "In its first year of operation the VPN has saved over 47 years of processing time in the U.S. alone."

Last year MasterCard processed 5.87 billion transactions with a gross dollar volume of $552.8 billion, he said. About 80% of MasterCard's transaction volume already has been moved to the new network.

To serve emerging markets such as China, MasterCard previously beamed authorization data by satellite to the U.S. The VPN will replace this system with global and local hubs using frame relay and asynchronous transfer mode technology.

"While our old network was reliable and served MasterCard and our members well, it was certainly fading and beginning to cost a lot to keep up-to-date," said Mr. Ahrens.

He said AT&T's international scope will give MasterCard the consistency of a single vendor. Member banks will have a single point of contact and guaranteed routing for transactions. All services-credit, debit, smart cards, data warehousing, and Internet-rely on the single network.

Mr. Ahrens said merchants can expect quicker authorizations as a result, with no changes in point of sale equipment.

MasterCard's partnership with AT&T is part of a continuing trend in financial services, said Michael Riley, vice president in the financial services division of Mercer Management Consulting in New York.

"Big financial service companies are becoming more sophisticated in their purchasing decisions and beginning to understand the value of integrated solutions for voice and data management," he said. "They are also becoming more aggressive in managing their costs."

Visa International, with a processing legacy that was perhaps even more centralized and mainframe-computer-dependent than MasterCard's, is similarly mapping plans to streamline its architecture, decentralize, and involve outside vendors.

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