SAN FRANCISCO -- Directors of Visa U.S.A. have voted to play hardball in the burgeoning market for corporate card programs.
At a meeting in Hawaii this month, the board voted to bar banks that issue Visa's brands of business cards from also offering Master Card International's brands.
The new bylaw affects only the commercial segment of the credit card business, and details of its implementation remain to be worked out.
But it underscores Visa's growing dissatisfaction with the "duality" that has reigned in the bank card market since 1975, when an out-of-court settlement opened the door to banks to issue both brands to consumers.
Visa International president Charles T. Russell last month said during a panel discussion at the American Bankers Association bank card conference in Washington that he's had second thoughts about duality.
Last year, concerned that antitrust questions about dual issuance of debit cards could slow the development of that product, Visa passed a similar rule, forcing banks to make a choice between Visa and MasterCard debit brands.
Announcement Due Soon
The San Francisco-based bank card association will announce the nonduality policy on business cards shortly, Richard H. Hagadorn, senior vice president of Visa International's credit products division, confirmed.
"Our hope and our expectation" is that bankers will choose Visa if they appreciate "the comprehensive strategy" under which it plans separate card programs for procurement, business travel and entertainment, and small-business use, Mr. Hagadorn said.
"We look forward to an environment where there would be open and unadulterated competition between the bank card brands. That's what this decision is going to engender," he insisted.
William L. Glascock, senior vice president of commercial card products at NationsBank Corp., said it would make sense even without the Visa bylaw to choose one product or the other, to avoid administrative confusion.
"From what we're hearing from the associations, there's probably going to be a diverging set of procedures associated with those products," he said.
Mr. Glascock, who currently oversees several MasterCard procurement programs, said that with final details of the MasterCard and Visa products yet to be announced, it is "a little premature" to comment on which brand NationsBank might choose.
One credit card banker, who requested anonymity, expressed frustration over the apparent escalation of the inter-association battle, however. This banker said Visa and MasterCard ought to be presenting a united front against nonbank card issuers such as Dean Witter, Discover & Co. and American Express Co.
Although the bar on duality may well help Visa gain market share, this banker argued that the tactic could ultimately back-fire especially if Visa adopts a nonduality policy for other products.
"You really wonder at what point they'll piss people off," this banker said, arguing that Visa is attempting to "stampede" banks into rejecting the products offered by its smaller rival.
He said that Visa is likely to chip a away at duality until it becomes a logical step to eliminate dual assistance altogether. "Mark my words, gold cards will be next," he said, referring to the highly profitable cards geared to upscale consumers.
Protecting an Investment
Mr. Hagadorn denied any such agenda exists, saying the board merely wants to protect its members' multimillion-dollar investment in developing new commercial card programs.
For example, he said, Visa is about to announce that three processing companies have been certified to process new Visa procurement cards that offer purchasing managers more detailed daily reports than available from other procurement programs.
He argued that banks would be undercutting their investment in that system by offering the recently unveiled MasterCard Purchasing card too.
"Also [board members] think that it's going to be very important to send a pretty strong brand message into a market dominated by American Express in corporate travel and entertainment. If you're going to go up against somebody who's been entrenched in the market for 20 years, you better have a clear brand image," he said.
Otherwise, the message to potential corporate clients that there is an alternative will be "muddled," he said.
American Express issues 58% of all corporate travel and entertainment cards, according to published accounts.
It also plans to compete in the fledgling procurement card market, which represents at least $300 billion of potential charge volume to bankers, who are hungry for growth opportunities now that the market for consumer cards has matured.
A Single Bank Dominates
Visa cards account for 12% of the corporate card market, compared with MasterCard's 2%. But 11% of the market is occupied by a single Visa issuer, First Bank System Inc. of Minneapolis, whose officials recently said they might add MasterCard business cards as a way to increase growth in the program.
Philip G. Heasley, the executive vice president who oversees the business card program at First Bank, was not available this week to comment on the new Visa policy, which would block that move.
Other bankers were unaware of the new policy and declined to comment. But they may well line up on the issue in much the same way they've lined up on the question of duality in debit cards.
Many bankers believe dual issuance of debit cards was ruled out in an antitrust decision in 1989 that forced the associations to drop a joint debit card program.
The decision requires banks that plan to issue both kinds to notify the state attorney general's group that had sued to block the associations from jointly developing a program.
Pros and Cons
The attorneys general argued that the joint development of the product was anticompetitive. But MasterCard officials and some bankers argued that duality would foster competition among bankers by enabling banks to fine-tune their debit marketing strategies.
For example, a bank might want to issue MasterCard Debit cards from a particular branch or in a specific region just to distinguish its products from those of a local rival in the Visa camp, some say.
When Arthur D. Kranzley, president of Maestro, MasterCard's online debit program, brought up these arguments at the ABA conference, some Visa officials and bankers scoffed that MasterCard has started pushing for duality because its debit card program won't survive without it.