BALTIMORE — The two public companies that own the biggest U.S. electronic funds transfer networks will keep on buying rivals, and so may one or two other major networks, NYCE Corp.’s chief executive said Monday.
In the past, said Dennis Lynch, who is also NYCE’s president, the balkanized model of regional networks meant that there were numerous logos on the backs of debit cards. “Now the companies have broad coverage, so those multiple brands on the cards are no longer necessary,” he said.
He spoke on the opening morning of the ATM & Debit Forum conference, which is sponsored by American Banker’s parent company, Thomson Media.
Mr. Lynch said that NYCE decided to sell a majority share to First Data Corp. a little over a year ago to remain “a successful and viable competitor.”
The future, he said, will see further consolidation in the hands of a few companies “that will be national and most likely international in scope.”
“Who will be those two to three players? They are in the room,” he said.
Mr. Lynch said it is not bad for banks that the two largest EFT networks are no longer run in association style but by companies that are beholden to shareholders. For example, he said, NYCE has an oversight committee of four legacy banks — HSBC, Citgroup Inc., FleetBoston Financial Corp. and J..P. Morgan Chase & Co. — that sets network operating rules and interchange pricing.
The oversight committee “works hand in glove” with the corporate board, Mr. Lynch said. “If a rule is to be changed, the corporate board and the oversight committee have to be in agreement.”
In 1990 there were more than 200 regional EFT networks, or automated teller machine networks, as they were known then. “They were spread around the country like bacteria,” Mr. Lynch said, and “making money really wasn’t the core, single focus of these companies.”
Today there are fewer than 40, and five of them process more than 80% of the PIN debit transactions in the country. The five are Star, owned by Concord EFS Inc; NYCE; Pulse EFT Association, still industry owned; Interlink, owned by Visa U.S.A., and Co-Op Network, owned by credit unions. Mr. Lynch said they now process more debit than ATM transactions.
Mr. Lynch, whose company’s success is closely linked to the flourishing of PIN debit, predicted not surprisingly that PIN will overtake signature as the preferred debit method.
“We’ve created a lot of tension [for the consumer] around the payment experience,” he said. “Someone is whispering in his ear to enter a PIN, and someone is whispering in his ear, ‘Don’t use your PIN.’ This is where we are today in the marketplace.”
Retailers are playing a more active role in steering customers toward PIN, Mr. Lynch said, and the Wal-Mart litigation could have a big affect on how things play out.
Speaking right after him, Bond Isaacson, who joined Concord EFS last month from Bank of America Corp., enumerated the ways banks will be switching to electronic delivery methods.
“We will look back in 10 years and laugh at the way we do business today,” said Mr. Isaacson, an executive vice president. “It is still too paper-intensive.”
He predicted that national legislation known as the Check Transaction Act, which would let banks use electronic images of checks as legal substitutes, will eventually pass, though it is not expected to do so this year. “It’s coming,” Mr. Isaacson said. “It could be one year; it could be two years. I think that people who are smart will get in front of it now.”
Since his company also has a lot to gain from the rise of PIN debit, it was not surprising that Mr. Isaacson predicted that check conversion at the point of sale would give way to debit transactions, nor that signature debit could also be converted to PIN.
With signature debit “you still have receipts floating around,” he said.
Viveca Y. Ware, the director of payment systems for the Independent Community Bankers Association, said she agreed with Mr. Isaacson about check conversion. “It’s going to dramatically change the industry,” she said. “Consumer awareness today is really piecemeal. Today very few merchants and financial instituitons are electronifying the check. Once consumers no longer receive monthly checks in their statemetns, it’s going to really spearhead awareness.”
Judi Shelton, the product manager fo rdebit cards for Bank One Corp., said she herself had questions about check truncation and conversion: “I’m not sure how that’s all going to be processed,” she said. “Does that mean it will it be able to be processed through the ATM network? I don’t know how that will interfere with the Fed processing.”
