MasterCard Inc., the world's second- largest electronic payments network, will lose more than half of a $59 billion portfolio of U.S. debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa Inc., two people familiar with the matter said.
MasterCard, which collects fees to process payments between banks and merchants, held the portfolio since 2005, said the people, who declined to be identified because the switch hasn't been officially announced. The customers had checking accounts at Seattle-based Washington Mutual Inc. until JPMorgan bought assets of the failed lender last year, the people said. Bidding for the accounts began in October, the people said.
"It is a fairly substantial blow for the company's debit platform," said John T. Williams, an analyst at Macquarie Capital in New York, in a research note. "The biggest motivating factor was Visa's robust debit platform, which is considered by many to be superior to MasterCard's." He rates both networks "outperform."
The shift strengthens Visa's hold on debit cards as consumers use them for a bigger share of their purchases, including staples such as gasoline and food. Visa already controls about two-thirds of the U.S. debit market, according to the Nilson Report, an industry newsletter. Issuers are counting on more debit card use to make up for declining credit-card profit as the 8.9 percent U.S. jobless rate drives up defaults.
No Material Impact
"We recognize that given the highly competitive nature of our industry and the challenging environment facing our financial institution customers today, decisions such as these can occur," said Joanne Trout, a spokeswoman for Purchase, New York-based MasterCard. The move won't have a material impact on MasterCard's revenue, Trout said.
JPMorgan will keep some debit business with MasterCard, including cards co-branded with Continental Airlines Inc. and the Chicago Bears football team, Trout said.
The "silver lining" to the change is that MasterCard is signaling that "it's not willing to go into a price war with Visa," Tien-Tsin Huang, an analyst at JPMorgan Chase, said today in a research note.
Consumers are relying more on debit cards — which are linked to a depositor's checking account, with purchases deducted from the balance — as banks have reined in credit limits, said James Friedman, an analyst at Susquehanna Financial Group in New York.
Visa said in April that its U.S. debit payment volumes in the last three months of 2008 exceeded those for credit cards for the first time. Debit grew 5.5 percent to $206 billion as the firm's credit volume fell 6.9 percent to $203 billion.
MasterCard dropped $1.58, or almost 1 percent, to $170.11 in 11:11 a.m. New York Stock Exchange composite trading. The stock gained 20 percent this year through yesterday. Visa climbed 14 cents to $66.42.
Christine Holevas, a spokeswoman for New York-based JPMorgan and Will Valentine, a spokesman for San Francisco-based Visa declined to comment.
Washington Mutual's entire debit-card portfolio made up about 5 percent of the U.S. debit card market, leaving MasterCard with more than 22 percent of the market share, according to the Nilson Report, based in Carpinteria, California.
Overall, consumers are switching from cash and checks to using debit and credit cards. People will use plastic for 55 percent of all U.S. transactions by 2011, rising from 40 percent in 2005, according to the Nilson Report.