A month after MasterCard International's 11th-hour settlement of the Wal-Mart suit, change continues to ripple through the debit payments business.
Two new developments came to light Thursday. On Sunday, U.S. Bancorp plans to turn off the personal identification feature on debit cards issued to its customers in Minnesota. That would mean the cards could only be used at merchant locations for signature debit, which generates the higher fees for banks.
MasterCard announced its own push for market share in debit, altering its rules on automated teller machine use to give banks more flexibility on waiving surcharges over the Cirrus network. MasterCard had barred such arrangements previously.
The association is now also courting card issuers and acquirers to designate the Cirrus ATM network and Maestro PIN debit network as the first choice for routing transactions.
U.S. Bank, of Minneapolis, made its plans known to customers in a May 13 letter signed by executive vice president Patricia A. Wesner. The letter told cardholders that they "will only be able to make purchases with your U.S. Bank check card at merchants that accept Visa. You will no longer be able to make PIN purchases."
Her letter does not specify Minnesota customers, but Ms. Wesner said in a telephone interview that the change only applied to the state, where PIN debit has never really taken hold. The customers currently using these cards "didn't even know they had this option available to them," she said.
Ms. Wesner also said that the legal events in the card business had no bearing on the move. "This started before the settlements. This has nothing to do with" the settlements agreed to by MasterCard International and Visa U.S.A., she said.
The letter gave telephone numbers for customers who do want to maintain the PIN function on their cards. Callers can cancel their current card and get a new check card along with a new PIN number. The letter also told customers they could enroll in a 1%-a-year cash rebate program promoting use and retention of Visa non-PIN cards.
Right now banks get much more revenue through signature debit interchange than PIN debit interchange, though that will change Aug. 1 when interchange on signature debit will drop by about one-third. Interchange fees will again change Jan. 1, 2004, but the amounts have yet to be decided. Additionally, merchants will be able to reject signature debit transactions even if they accept Visa or MasterCard credit cards.
Some debit-reliant bankers have groused about the settlement. TCF Financial Inc., of Wayzata, Minn., filed a motion in mid-May seeking to challenge the agreement. William Cooper, TCF's chairman and chief executive, said Thursday that his company was also looking at the possibility of dropping PIN debit transactions in its home state.
Meanwhile, MasterCard's announcement Thursday that it will allow surcharge-free transactions on its national Cirrus network represented a clear attempt to grab share from regional electronic funds transfer networks such as Pulse EFT Association and NYCE, which already offer surcharge-free programs.
Richard G. Lyons Jr., a senior vice president with MasterCard International's deposit access group, said, "With over 350,000 ATM locations in the Cirrus/MasterCard network in the U.S., a surcharge-free ATM alliance has the potential to exponentially increase a member institution's network of ATM terminals."
Until now Cirrus and Maestro have operated mainly as what are known as networks of last resort rather than as ones that issuers and acquirers designated as their primary network for the movement of ATM and debit transactions. Many banks are operating under agreements that give priority to regional networks.
Star and NYCE "have a rule that transactions need to go to [our] networks before they go to the national networks," said Jim Judd, an executive vice president of NYCE Corp. MasterCard's new initiative "would appear to conflict with the operating rules of NYCE."
But he said that he would have to study the new rule more closely to understand the full implications.
"Those rules were created when regional networks were truly operating in regions," said Mr. Lyons. "It's been a long accepted practice in the debit industry that issuers should be provided the opportunity to direct how their customers are being serviced and how their transactions are routed."
Mr. Cooper at TCF said he welcomed any step that would mean more competition between networks.
"I think this will evolve. The way this thing should work and eventually will work, I will be able to negotiate between MasterCard and Visa and Star," he said. (Star is run by Concord EFS Inc. of Memphis.)
Still more changes in debit are likely, Mr. Cooper added.
"One of the interesting things about the Star network and other PIN-based networks," he said, "is they have a very similar rule to Visa. They have an honor-all-cards rule - if you take their ATM transactions, you have to take their debit transactions. I suspect that rule won't survive, either because of the banks or the legality of the rule."
