In an announcement perhaps as interesting in its timing as in its content, MasterCard International said Tuesday that it had formed an alliance with eFunds Corp. to market a PIN debit processing service to MasterCard banks.
A press release about the service, which MasterCard will start market immediately under the name MasterCard Complete Debit Processing, was issued the day after First Data Corp. and Concord EFS Inc. said they had struck an agreement with the Justice Department that would allow First Data to buy Concord while shedding the PIN debit unit NYCE Corp.
Industry executives had been waiting to the resolution of that dispute to determine how the PIN debit card processing market will look in the future, and the outcome - with Concord's Star and First Data's NYCE to be owned by separate companies - indicates that there will be more competition among processors.
MasterCard does virtually no PIN debit processing in the United States today, while Visa U.S.A.'s Interlink has grown to become the second-largest PIN debit network, after Star.
Some industry observers speculated that MasterCard's best way to plunge into the market would be to buy NYCE, but the deal with eFunds, an electronic payments processor and automated teller machine deployer based in Scottsdale, Ariz., offers a different entry point.
Alan Pohlman, an executive vice president at Carmody & Bloom Inc., a payments industry consultancy in Ridgewood, N.J., says the deal makes sense only if it includes "a better pricing arrangement" than institutions could otherwise obtain from eFunds.
John Gould, the director of consumer lending and bank cards at TowerGroup, a technology research and consulting firm in Needham, Mass., said Tuesday that buying NYCE would still be the next logical step for MasterCard. "MasterCard has got to start taking some dramatic moves to really increase its presence in debit."
"What they still need to do is acquire something where they can get debit brand penetration, because at the end of the day, MasterCard and Visa are all about brand," he said.
Richard G. Lyons Jr., a senior vice president of MasterCard's Deposit Access Group, North America, said the announcement had "absolutely no relationship to any other announcement or event that has taken place" recently in the debit world. "It seems like every week there is a brand new big announcement around debit. We like to think this is the big announcement this week."
The eFunds pact is one of the important changes that MasterCard has made with its debit operations this year, he said. It has also changed its rules to encourage the use of Cirrus and Maestro as something other than networks of last resort. By joining up with eFunds, MasterCard "rounds out" its technology infrastructure in both back-end and front-end processing.
MasterCard had considered the possibility of buying eFunds software and processing debit transactions through its St. Louis center, but that would have taken about 18 months to get ready, Mr. Lyons said.
"There's a time-sensitive nature to what's going on in the marketplace," he said. "Institutions representing about a third of the debit cards and almost half the transactions are making decisions around their debit affiliation in both brand and technology, so this provides a credible alternative."
Mr. Gould said he had heard a rumor that MasterCard might buy eFunds, but Paul Walsh, the chairman and chief executive officer of eFunds, said it was "not for sale." Its relationship with MasterCard is "quite intimate, but not quite that intimate."
Both Mr. Lyons and Mr. Walsh said it is too early to speculate about a purchase of NYCE.
Mr. Pohlman said MasterCard may have held off on the announcement of the eFunds deal until the First Data/Concord matter was resolved. But he considered it unlikely that that there was a cause-and-effect relationship between the two. "Usually these deals are in the works for quite a while."
Most analysts said the deal between MasterCard and eFunds is a smart move for both companies.
"In an era where debit volume has become so important to the associations' future, where debit is the fastest-growing card product out there in terms of volume, it makes a lot of sense for these two organizations to get together to support each other," said Paul Jamieson, the president of FiSite Research, in Lakewood, Colo. MasterCard has "a network of ready customers in their member banks, while eFunds has complementary products that MasterCard can cross-sell to these customers to broaden their debit relationship."
