After battling one another for nearly two decades in the credit card wars, Visa U.S.A. and MasterCard International are now fighting on a new front: debit cards.

At stake is a potential processing bonanza -- a slice of the billions of transactions made by cash or check each year at gas stations, restaurants, and supermarkets.

Each card organization is setting up its own national debit card program, but this latest battle has an unusual twist.

While banks can issue both MasterCard and Visa credit cards, they are limited to joining only one of the debit card programs. That's because of an agreement the card groups signed two years ago to settle an antitrust suit.

So it's little wonder that executives from both camps have been waging fierce campaigns to sign up banks -- and discredit each other.

"There is a lot at stake," says Peter Gustafson, a senior vice president at Visa. "It's like choosing a president in November that you will be stuck with for the next 10, 20, or 30 years."

Head Start for Visa

So far, Visa's Interlink network is way out in front. The reason: Interlink was already up and running as a regional network last year, when Visa bought it from four big California banks.

MasterCard, by contrast, started its Maestro network from scratch. In fact, the network did its first transaction just last week. Interlink's 12.5 million cardholders, meanwhile, made 100 million purchases last year at the point of sale with ATM cards. The total value: $2.5 billion.

Overall, 347 banks representing 65 million ATM cardholders have said they will issue Interlink cards. Maestro has signed up 256 U.S. banks.

But the battle figures to be a long one, and it's not likely to be waged on the relative merits of the two networks alone.

For one thing, politics will certainly play a big role. Both Visa and MasterCard are trying to leverage the ties they have forged with senior bankers from years of doing business.

Differences in Sales Pitch

Perhaps more importantly, Visa and MasterCard will also be battling regional networks that are well positioned to capture point-of-sale transactions and will not readily surrender processing business to the card giants.

Indeed, one of the key differences in strategy between Maestro and Interlink is how they have approached regional networks.

Visa rattled some regional players with its acquisition of Interlink. That deal created the impression that Visa might buy networks around the country and compete head on with the surviving regional systems.

At the least, Visa is viewed as an owner of a powerful regional transaction network, which puts it in competition with other bank-owned systems.

Keeping Regionals Happy

MasterCard, by contrast, has curried favor with the regional networks, saying it would guard their interests better than Visa. Maestro, it said, was designated to switch transactions among the regional systems.

"Originally, the Visa program looked like it would be competing with the regionals," says Janet S. Hartung, a former technology executive at Mellon Bank Corp. who recently joined Transaction Processing Inc.

To counter that perception, Interlink named a prominent ATM network executive, David A. O'Connor, who is president of Internet Inc., as chairman of the Interlink board. And Visa's Mr. Gustafson stresses that there will be a role for the regionals in the Interlink system.

"We believe [Interlink and the regionals] will complement each other," he says. "The regionals have a good idea of what will happen for direct debit, and we're working jointly with them in rolling it out."

Some bankers, however, remain wary that Visa has larger designs. "Visa's and Interlink's interests are very much to become a POS service mark and to eventually leave the regionals out of the equation," asserts one Maestro devotee."

Maestro Has Broader Focus

There are two other significant differences between the programs. Maestro is designed to function internationally, while Interlink is only domestic.

And the networks carry different pricing schedules. Interlink banks will pay Visa a small fee on each card they issue; Maestro has no per-card fees.

At Interlink, the fees merchants pay to accept the cards will vary based on their industry. Supermarkets, for example, will pay a flat transaction fee, while other retailers will pay issuing banks a small percentage of each sale. At Maestro, all merchants will pay a flat transaction fee.

Such differences were not what Visa and MasterCard originally planned. They wanted to operate a joint debit-card venture, called Entree, but were stymied when a group of state attorney's general filed the antitrust suit.

In a settlement, the card associations agreed to scrap Entree and embark on their own separate and distinct debit card projects.

Spurring Competition

Lloyd Constantine, a former assistant attorney general for New York State, says the resulting Maestro-Interlink battle is exactly what the attorney general were hoping to create.

"It's great from a competition standpoint," says Mr. Constantine, now a partner at McDermott Will & Emery, a law firm in New York. "There are all sorts of strands to the rivalry, and it's very positive."

Some bankers are not so sure. They say most banks will choose a national direct debit network based on their allegiances to MasterCard and Visa.

"The mark of choice is primarily going to be driven by whose club you're in," says James Grant, a senior vice president at the First National Bank of Chicago, which has yet to align itself with a national debit network.

An Eye on Politics

Adds A. Christian Frederick, a senior vice president at Fleet Financial Group: "Eventually, Interlink and Maestro will shake down to be the same. To date, it looks like the decisions made by banks have been political."

Fleet itself is a case in point. In June, the Providence, R.I.-based company announced it would join Maestro's board, only to recant a few weeks later and take a seat on Interlink's board.

Neither Fleet no Interlink executives will explain the about-face But industry insiders think the reason is clear: Robert L. Mushkin, a Fleet vice chairman, is a member of Visa's board.

Sniping by Executives

The turf battles have left Maestro and Interlink executives sniping at each other. Rita L. Champ, a Maestro vice president, charges that Interlink helped turn the competition into a political contest by enlisting credit-card executives to support its system.

This was foul play, she contends, because "the world of debit and credit have been separate for a long time." Maestro salespeople try to visit with the executives who run a bank's checking programs - not its credit card crew, she says.

Visa's Mr. Gustafson plays down the impact of politics. He says Interlink's marketing push begins at the head of a financial institution's retail banking department and continues on to all levels of a bank's management, sometimes ending with the chief executive officer.

"Board and brand allegiances do help," he says," but it hasn't been a overriding show stopper." Interlink is ahead, Mr. Gustafson contends, because "it is a known commodity. Maestro has a lot of unknowns."

Interlink's board has managed to make inroads into the MasterCard camp. Despite having a seat on MasterCard's board, Wells Fargo & Co. is also an Interlink director. And first Interstate Bancorp., another bank with close ties to MasterCard, is also an Interlink player. But both Wells and First Interstate helped to found Interlink years before Visa acquired it.

Regional Still Stronger

Even under the best circumstances, MasterCard and Visa can hope to capture only a small portion of point-of-sale transactions, at least initially.

The reason: Most payments are tailor-made for regional networks. Consumers typically buy groceries and gasoline close to home, and that will provide a powerful edge to the brand names of the regionals.

"The average consumer transacts business within a 20-mile radius of where they live," says Michael L. Douglas, PNC Financial Corp.'s director of electronic banking. "A brand identifiable with a certain geography is crucially important."

At Boston-based BayBanks Inc., for instance, debit card executives are focusing their attention on XPress 24, the bank's proprietary electronic funds transfer network.

"We're signing up merchants for XPress 24 daily," says Robert Shay, a BayBanks senior vice president. For customers who travel and shop outside of Massachusetts, BayBanks will participate in the New York Cash Exchange's direct debit program, he said.

While Baybanks will also offer its cardholders access to Maestro, Mr. Shay stresses that "overall, what'shappening in point of sale is happening on the regional level."

Four superregional banking powers - CoreStates Financial Corp., Banc One Corp., PNC, and Society Corp. - obviously agree. The groups has just formed a joint venture, called Electronic Payment Systems, to compete in the burgeoning debit card market.

The new network is expected to expand CoreStates' Mac - already a mammoth electronic funds transfer system - outside of its Middle Atlantic base. But while some expect the new network to eventually go head-to-head with the national debit systems, PNC's Mr. Douglas thinks the focus will inevitably be regional.

Ready to Step In

So if the regional networks have the upper hand, what's in it for MasterCard and Visa?

Some believe the card organizations are taking the long view, preparing for the day when regional networks might merge or fall by the wayside. Then, having developed strong brand names, Maestro, Interlink or both would be positioned to step in and handle the transaction business.

Meanwhile, there are still large areas of the nation where point of scale has yet to take off, including parts of the Northeast and Midwest. In such markets, the national networks - or the new regional joint venture - could become the primary provider of direct debit if local banks and their regionals fail to act.

"In the absence of a regional mark, Interlink and Maestro will work fine," says First Chicago's Mr. Grant.

Facing a Hard Choice

Some bankers are still holding out hope of offering their customers both Maestro and Interlink. That would enable them to market Interlink cards to one customer segment and Maestro to another.

Being limited to one mark is also a problem for institutions - including Fleet and First Chicago - that already offer both of the card associations' "delayed debit" products, known as MasterDebit and Visa Debit. Interlink issuers will eventually have to convert their MasterDebit cards to Visa Debit cards - a situation which could result in some expense. (See related story.)

"More banks are considering this issue," says Fleet's Mr. Frederick. "They are being forced to make hard choices that don't really make sense."

Banks are looking at ways to challenge the prohibition on joining both systems, according to some bankers.

"I would love to see someone do that," adds Mr. Grant at First Chicago. "If I can put a Cirrus mark on a Visa credit card today, why can't I put an Interlink mark on a MasterCard?" Cirrus, an international ATM network, is owned by MasterCard International.

Meanwhile, the fight continues, and the rewards are likely to be great. It may be a long time, however, before its is decided how the spoils are divided among Maestro, Interlink, and their feisty regional rivals.

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