SunTrust Banks Inc., the nation's seventh-largest debit card issuer, announced today it will convert its debit card portfolio to MasterCard from Visa.

MasterCard's joint marketing programs will enable the Atlanta-based bank to grow its portfolio faster and help generate more revenue to better compete in the Southeast banking market, a bank official says.

SunTrust will begin converting existing debit cards to the MasterCard brand this year, and it should complete conversion of the entire portfolio within a year, says Hugh Gallagher, the bank's senior vice president of deposit product management.

As of Dec. 31, SunTrust had issued 4.4 million debit cards, including 4.3 million signature and 40,000 PIN-debit cards, according to PaymentsSource. Gallagher declined to disclose the contract's length, but industry experts say such agreements typically run five to seven years.

Though MasterCard Worldwide historically has struggled to secure more than a 25% share of the U.S. signature-debit market shared solely with Visa Inc., Visa responded to the bank's decision by noting it expects brand alliances with debit card issuers to shift. "The payments business is highly competitive, so it is not unusual in our industry for client financial institutions to move between payment network providers now and again, especially as the debit category is evolving," Visa said in a statement.

During the first nine months of last year, U.S. issuers of MasterCard-branded debit cards initiated 6.22 billion transactions, up 12.1% from 5.55 billion during the same period a year earlier. Cardholders spent $244 billion with their debit MasterCards, up 5.2% from $232 billion, according to MasterCard.

SunTrust's agreement with Visa was nearing expiration when the bank decided to sign with MasterCard, Gallagher says. "We talked with MasterCard and Visa, and we decided that our relationship with MasterCard would help us better manage our debit portfolio, grow it faster and make more money," he adds. "Prior to the recession, debit card [use] was growing at 10% to 15%, but it has now slowed to 5% to 6%. When the economy rebounds, we expect debit card usage to resume its double digit growth."

Gallagher cited MasterCard's joint-marketing programs and the network's SpendingPulse report as key reasons behind SunTrust's decision to move to MasterCard. SpendingPulse, a macroeconomic indicator offered by MasterCard Advisors, tracks consumer spending so issuers can recognize and capture spending opportunities, says Barbara Coleman, a MasterCard spokesperson.

SpendingPulse issues reports weekly and monthly in various spending categories, including retail, airline, apparel, department store and eCommerce sales.
MasterCard wants more banks to issue its debit cards, so the network offers a lot of incentives to attract new issuers, says Adil Moussa, an analyst with Aite Group LLC, a Boston-based consulting firm.

"MasterCard provides marketing dollars for banks, and the network offers attractive pricing to attract new issuers," Moussa says. Neither SunTrust nor MasterCard disclosed the agreement's terms.
SunTrust must be aggressive in the Southeast market because it's highly competitive, Gallagher says. The bank's footprint begins in the Mid-Atlantic region and extends into Florida.

"The banks are slugging it out in the Southeast," Gallagher says. "None of the banks, including Bank of America or Wells Fargo, have a 40% market share like in other regions of the country."

SunTrust's move to MasterCard is very big news because of the size of its debit card portfolio and because SunTrust voluntarily moved its card portfolio, Moussa says. "This is different from what we have seen in the past few years, where one bank purchased another and converted its debit card program."

Last year, for example, New York-based JPMorgan Chase & Co. converted Washington Mutual's debit card portfolio to Visa from MasterCard. Washington Mutual was based in Seattle.

SunTrust will continue issuing MasterCard- and Visa-branded prepaid and credit cards, Gallagher says.

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