Nordstrom Inc. buried a hatchet last week by announcing it will issue Visa cards.
For more than a decade, Nordstrom had been one of the retailing industry's harshest critics of bank credit cards. Although there was never any love lost between the merchants and bankers who compete for consumer credit, Nordstrom was especially militant. Its objections to Visa's pricing escalated into a lawsuit 10 years ago.
Changes in Visa policies led Nordstrom to withdraw that suit, and the trendy Seattle-based retailer has since been accepting MasterCard and Visa cards without incident. But the legal battle left an aftertaste - perhaps as strong among other merchandisers as within Nordstrom itself.
Retailers may still harbor suspicions about bankers, who have been tough - in some merchants' eyes, unfair - competitors for the credit card dollar.
But the bitter Nordstrom chapter, at least, is over. The company plans to begin issuing Visa cards next spring. Both Nordstrom and Visa are declaring an era of good feeling.
More Competitive Pricing
"Times have changed," said John Walgamott, president of Nordstrom National Credit Bank in Englewood, Colo., which will issue the cards. "They [Visa] have got a good franchise, and pricing is much more competitive" than it was when Nordstrom sued to protest Visa's one-price policy for both credit and debit transactions.
Retailers argued then that the fee banks charged to process a credit card payment should be greater than that to process a debit item. The latter worked like a check, which costs nothing to clear.
None of Their Business
Visa, which at the time did not require that debit cards look different from credit cards, said a store had no business knowing whether a transaction was one or the other. It was a private matter of customer choice.
"There was a time when one pricing scheme fit all," said H. Robert Heller, president of Visa U.S.A. "As we have become more sophisticated, with the ability to differentiate between types of cards and transactions from a product and technical. standpoint, we have developed a broad pricing matrix that does justice to the differences among merchants.
"This makes big retail stores happier," Mr. Heller said. "We are pricing to the market."
Such an approach would certainly appeal to a store like Nordstrom, renowned for its single-minded commitment to customer satisfaction.
But Mr. Heller suggests there is much more to this development than just one merchant's decision to issue a bank card. Years of fence-mending by bankers and their card associations -- both Visa and MasterCard International -- seem to be paying off. Virtually all major department and specialty stores accept the bank cards, often alongside the proprietary store cards that once had the business to themselves.
There are strong indications that Sears, Roebuck and Co., the last great holdout, is getting ready to accept MasterCard and Visa in addition to its own card and Discover, which it invented.
Talk of More Deals
Sources within MasterCard and Visa hint that more Nordstrom-like card-issuing or co-branding deals are on the horizon.
"We expect quite a few retailers to look at this option," said Mr. Heller. "They will certainly ask if it is better to [issue through] an existing institution or on a stand-alone basis."
Nordstrom is doing the latter, using the facilities of the bank it formed in 1991 for the in-house credit card of its 72 stores in I states. They had total sales in 1992 of $3.4 billion.
Annual credit volume is running at about $1.6 billion, and the bank's assets range between $600 million and $700 million, Mr. Walgamott said in an interview.
Very Different Programs
With 24% of receivables turning over each month, the characteristics of a store credit program like Nordstrom's are very different from a bank card business with sizable and stable outstanding balances, Mr. Walgamott pointed out.
Bankers' and retailers' differing outlooks on the credit business were at the root of their historical enmity. Perhaps they are finding common ground.
"Customer buying trends indicate that bank card usage is increasing," Mr. Walgamott said. "They also tell us that our customers would prefer, if given more options, to use a Nordstrom credit card.
"Once Nordstrom issues its own Visa card, we will be able to satisfy both of those specific customer needs."
Visa was the chosen brand because it is "a good franchise, well thought out, well planned," the executive said.
More than Just Cards
Mr. Walgamott said MasterCard was "not far behind."
"As I learned in the lawsuit," he added, "Visa and MasterCard are not just card products. They are payment systems, and they will dominate."
Nordstrom figured out a way not just to be resigned to the necessary evil" of accepting outsiders' cards, but to become an active player in the bank card game, on its own terms.
The company has not set its pricing, which presumably would be calculated to win some balances away from bank's. "All the decisions will be financial," Mr. Walgamott said. "We hope to be profitable and create additional volume."
Pricing Still an Issue
Other retailers will not necessarily follow Nordstrom's lead, nor share in the interindustry good feelings.
The question of accepting bank cards "is largely behind us," said Ralph Spurgin, credit division president of the Limited Inc. "But pricing is still very much an issue." He called debit card pricing "unfair and wrong" and said that "with the ongoing debate about interchange rates, pricing will never be a dead, issue."
"We have no plan to issue a Visa or MasterCard," said Mr. Spurgin, whose company opened a credit card bank in 1989.