Brian O'Hare, the head of Norwest Corp.'s credit card operation, has long been regarded by his peers as a leading-edge thinker. His latest crusade making debit cards into a profit center appears alien to the credit card mindset, which may only enhance Mr. O'Hare's reputation. The most exciting thing today is debit, said the president of Norwest Card Services, which is based in Des Moines. I see it as one of the fastest-growing businesses we have. He also sees an impediment to profitability in one of the linchpins of the existing debit card system: regional automated teller machine networks. He is in favor of national utilities. The regionals pay lower interchange rates than Interlink, Visa U.S.A.'s national debit network, Mr. O'Hare complained. Why should it cost me money to use a local network? Mr. O'Hare, a New York native and an engineer by training, worked for the National Aeronautics and Space Administration until Neil Armstrong took his giant leap for mankind in 1969. He then spent 13 years with Citicorp in its private-label card business. In 1984 he joined Bank of America, where he was charged with revitalizing one of the banking industry's oldest credit card programs. The fact that we turned around the credit card business is the principal reason the bank is surviving today, Mr. O'Hare said of his Bank of America experience. K. Shelley Porges, a San Francisco-based marketing consultant who briefly worked under Mr. O'Hare during his tenure at Bank of America, said she learned a lot from him, especially understanding the financial and operational side of the card business. She said he introduced the Gold MasterCard and the Apollo line of credit for balance transfers long before the balance transfer war erupted. It was a highly successful program, she said. Ms. Porges called Mr. O'Hare a bit of a contrarian who enjoys bucking the trends. He's very passionate about his opinions. Brian speaks his mind, said Peter Dimsey, senior executive vice president at MBNA America Bank and a former president of MasterCard's U.S. region. While Mr. Dimsey was at MasterCard, he said, Mr. O'Hare was a key member of its international operations committee. He had a keen understanding of how the electronic side of the business worked, Mr. Dimsey said, and was skillful at linking the delivery of the system to the business needs of customers. After moving between coasts, the 55-year-old executive was lured to the heartland in 1991 by Minneapolis-based Norwest, which was intent on expanding in credit cards. The project is progressing slowly. The portfolio has $2.1 billion of outstandings and 2.5 million cards not quite enough to make the industry's top 25. Mr. O'Hare said the market is so competitive that the bank has throttled back on direct mail, focusing on its own consumer banking relationships. He said Norwest typically approves nearly 50% of applications from its customer base. We'll go the extra mile to make sure that, if that deal is bookable, we'll book it, he said. The bank has a healthy merchant processing business, with $2.5 billion of sales volume from 35,000 merchants. In March, Norwest signed a letter of intent to enter into a merchant bank alliance with First Data Corp.

Turning his attention to the fast-growing debit opportunity, Mr. O'Hare noted that his bank had received $8 million in interchange income last year on its two million cards both on-line Instant Cash cards and off-line Instant Cash and Check cards, which are Visa products. Mr. O'Hare said he could make even more money if the industry would rid itself of the patchwork of regional networks that have become his pet peeve.

Most of the regional ATM networks are not operated for the benefit of members but for benefit of the regional ATM networks, he said. The regionals cheat their (card-) issuing members out of interchange income they would have gotten from the national on-line networks, Visa's Interlink and MasterCard's Maestro, he asserted. Generally, Interlink transactions pay 10 cents; Maestro, 9 cents; and regionals, in the range of 3.5 cents, said Mr. O'Hare. He pointed out that in states like Iowa and Wisconsin Norwest is paying retailers 16 cents per card transaction. In the electronic transaction hierarchy, the issuer of a card decides on its network of choice for clearing any given transaction. Normally, the regional provider gets first dibs, and a national network would come into play if the purchase is made outside a cardholder's home region. But Norwest is changing that scenario, said Mr. O'Hare: We're developing a strategy in every one of our states to stop this subswitching nonsense. You pay us what you rightfully owe us, or we'll find another way to get it. Last year, Norwest's Arizona bank withdrew from Star System Inc.'s debit affiliate, the Explore network, and earned an extra $250,000 in interchange income. Instant Cash card transactions are automatically bumped to Interlink. Regionals, which had a useful function when banks were trying to move customers from human to automated tellers, have lost their relevance now that the nationals have such ubiquity, said Mr. O'Hare. They don't develop business, he said of the regionals. Interlink develops the business and then the local networks swarm all over and subswitch the transactions. Regional nets' chief executives and their staffs are preserving their jobs at our expense, Mr. O'Hare said. Bankers need to wake up and say these guys have a plush job because they're taking money out of our pockets. He accused some bankers of falling asleep at the switch. Joseph E. Wallace, a Chicago-based financial consultant and longtime observer of bank network politics, said Mr. O'Hare is one of the few people in banking who understands what's going on and is willing to talk about it. The regional networks are a high-cost, confusing system, Mr. Wallace said, but decision-making is complicated by the fact that all networks, including the nationals, are owned by banks. While network participants' income may be limited, regional networks' equity owners have a stake in their operating profits. Should the regional networks just fold their tents and let the nationals prevail? asked Stephen S. Cole, chief executive officer of Cash Station, the ATM network based in Chicago. The answers will come from the banks. Mr. Cole said network board members, who are owners and customers, have to decide which hat to wear when they vote. Mr. Wallace said the differing logos on bank cards and ATMs can be confusing to consumers and merchants. He also pointed out that cards have become a crucial bank relationship tool. Branding in these things is very important, he said. If I'm a bank in Texas, I don't want my relationship card thought of as (a) Pulse card, reflecting only the identity of that dominant southwestern network. Consumers' demand for the convenience of using plastic drives volume up, but if you stopped a customer on the street and asked, most don't know what it's all about, said Mr. Wallace. Regional pricing is more attractive to the merchant than national pricing, said Mr. Cole, adding that all parties in the deal the merchant, the bank, and the network should come away satisfied. If the regionals price at or above the nationals, then the regionals will have a problem competing, Mr. Cole said. With merger mania sweeping the banking industry, the network structure is bound to change. At some point people will begin to demand rationalization for redundant systems, said Mr. Cole. Ultimately, if our shareholders want us to survive we will; if they see no value in it we won't, he said. But he pointed out that competition is healthy. The banking industry will do themselves a disservice if they boil it down to two choices. He said the nationals couldn't handle all the nation's traffic: 746.5 million transactions per month in 1994, according to Bank Network News. Even so, Mr. O'Hare said, we're going to continue on our merry way. This is an attractive business to be in. We need to be more aggressive in terms of working this source of income. Once banks wake up to the income potential, he said, they'll wake up to the hosing they're getting by the regional networks.

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