(From ATM&Debit News)
For decades several small electronic funds transfer networks have provided financial institutions on the geographic fringes of the country a vital link for switching automated teller machine and debit card transactions.
For example the Isle Share EFT network, owned by the Bank of Hawaii, was once a prominent network for financial institutions in the state, and the Alaska Option network, owned by Alaska USA Federal Credit Union, provides debit transaction links to financial institutions there.
But as larger EFT networks move in, card issuers are using these regional networks less often.
Last month the NYCE network, owned by Metavante Corp. of Milwaukee, announced that American Savings Bank of Honolulu had joined it. American Savings, with 65 ATMs and about 200,000 debit cards, is one of Hawaii’s largest debit card issuers; though its debit cards and ATMs will continue to carry the Isle Share logo, NYCE will switch its debit card and ATM transactions.
Abel Malczon, a senior vice president of operations at American Savings, said it went with NYCE for a host of strategic reasons, a key one of which is that the bank already uses Metavante as a transaction processor.
American Savings plans to introduce several new card products, including debit cards attached to tax-deferred health savings accounts and payroll debit cards, Mr. Malczon said. Metavante already has a transaction-processing system in place for payroll and health savings account card transactions, so using NYCE as a network on these cards makes issuing them less expensive than using another network would, he said.
Also, NYCE’s interchange rate structure will provide more revenue for the bank, he said. “Interchange is one of the main reasons why we formed this partnership,” Mr. Malczon said.
American Savings also liked the idea that millions of tourists from the U.S. East Coast already carry debit cards with the NYCE logo on them, he said.
In recent years other Hawaiian issuers have also switched to networks such as NYCE or First Data Corp.’s Star Networks Inc. The shift is cutting into Isle Share’s transaction volume, according to Bob Makahilahila, an Isle Share vice president.
In 1981, when his network was formed, there were no other shared EFT networks on the islands, Mr. Makahilahila said. Now Star, NYCE, and Visa U.S.A.’s Interlink PIN-debit POS network all compete for issuers there — indeed, even Bank of Hawaii uses Star as its preferred network. As a result, Isle Share now has little transaction volume.
Many issuers in the region want to keep the Isle Share logo on their cards and ATMs as a backup in case communications with the mainland fail, Mr. Makahilahila said. Though the network may eventually fade away, there are no current plans to shut it down, he said.
NYCE’s president, Steve Rathgaber, called American Savings a key win for NYCE, which has been an important debit network for East Coast issuers such as Citigroup Inc.
Geography is now playing a smaller role in the major EFT networks’ ability to attract debit card issuers, Mr. Rathgaber said; strategic value is now important.
Metavante, which acquired NYCE in 2004, has helped it expand into regions such as the West Coast and Hawaii, Mr. Rathgaber said. Metavante’s relationship with American Savings “didn’t hurt” when his network approached it, he said; “a strategy that has been successful for us is cross-selling.”
Alaska Option was created in 1983. Its PIN debit point of sale transaction volume, which grew 29.3% in 2004, was flat last year, according to ATM&Debit News’ annual EFT Data Book.
Demand for geographically linked networks such as Isle Share and Alaska Option will continue to fall, said James A. Hanisch, the executive vice president for network operations and corporate development at the credit union debit company Co-op Network of Ontario, Calif.
Such local networks were once the only choices available to issuers and ATM deployers in some regions, but this is no longer the case, Mr. Hanisch said. “The age of the regional network has certainly waned,” he said.
