Visa U.S.A. is still working to sew up a commitment deal with the new J.P. Morgan Chase & Co., Visa’s top executive said Friday.
Carl F. Pascarella, Visa U.S.A.’s president and chief executive, said in a telephone interview that the former Bank One Corp. had been among the many banks that signed a “partnership agreement” with Visa, in which it pledged a certain tilt of loyalty to the Visa brand in exchange for preferential pricing and other benefits. But the legacy JPMorgan Chase had primarily been a MasterCard issuer.
And though the blended institution issues more Visa cards than MasterCard cards — 62% versus 38%, according to a January tally in The Nilson Report — Visa does not currently have a formal loyalty arrangement with JPM Chase.
“We’re working very hard with them — the negotiations go on,” Mr. Pascarella said. “We fight for their business every day. We’ve got a very, very strong relationship with JPMorgan Chase and with both entities that preceded it, and we want to continue” such closeness.
On Thursday, JPM Chase said that the two executives who had represented it at the board level at MasterCard had resigned from those boards, but that the two executives who sit on the Visa USA board would stay put.
The bank called the moves a “necessary step given the governance rules of the card associations,” and cautioned against overanalyzing them.
“We would expect to have a decision made by the end of the third quarter” about JPM’s business relationships with various payment system providers, said a spokesman, David J. Chamberlin.
Howard K. Mason, an analyst at Bernstein Investment Research and Management, wrote in a research note Friday that the MasterCard board resignations represent one of two JPM Chase announcements that “signal a bias towards Visa over other payment networks.” The other was the decision to shift card issuer processing to Total System Services Inc. from First Data Corp., which “undermines First Data Net,” the major competitor to Visa’s processing network, he wrote. Bernstein is a unit of Alliance Capital Management LP.
JPM Chase would not make either Richard J. Srednicki, the cards chief who became chairman of MasterCard’s North American board this year, or Donald Layton, the vice chairman who sat on MasterCard’s global board and is retiring from the bank this month, available to discuss their resignations from MasterCard.
Asked for his insight about the resignations, Mr. Pascarella said, “I don’t know what was behind it and what it means, and I wouldn’t read anything into it.”
Under the partnership program Visa started in 1999, banks that signed commitment deals began getting much higher levels of personal attention from Visa than those that didn’t. Shortly after the program was introduced, Mr. Pascarella described it this way in an interview with American Banker: “They should be using us almost as an extension of their organization. I want to have offices at the bank.”
When the program came about, the Justice Department’s antitrust lawsuit against Visa and MasterCard had not yet gone to trial, and the governance of the associations was a major issue in the litigation. The government had contended that it was not right for Visa and MasterCard to accept board members from companies that predominantly issued the opposite brand; both the partnership program and MasterCard’s “member business agreements” were seen as efforts to change the situation without the need for legal remediation.
A MasterCard spokeswoman said Friday that company policy prohibits its board members from simultaneously holding seats on Visa U.S.A.’s board. Hence, after JPM Chase and Bank One closed their merger on July 1, JPM was effectively forced to choose one board or the other, said the spokeswoman, Sharon Gamsin. She said she was not aware of any deadline for doing so.
Ms. Gamsin said she did not know when the MasterCard policy against dual board membership was adopted, but that it was a byproduct of “MasterCard’s push seven or eight years ago to get banks to commit to using MasterCard as their brand on a majority of their cards.” This policy change “predated the Justice Department suit,” she said.
The two JPMorgan Chase executives who sit on the Visa U.S.A. board — both of them hailing from Bank One — are William Campbell, from the credit card unit, and Charles Scharf, who heads JPM Chase’s retail business.
JPMorgan Chase is among the major banks that issue the Visa Signature Card, a product aimed at affluent consumers (those with $125,000 or more in annual household income. Indeed, Mr. Pascarella’s purpose in talking with American Banker on Friday was to discuss an upcoming ad campaign for the Signature credit card, which Visa positions as an alternative to the American Express gold card.
Mr. Pascarella said the Signature product, introduced in 1998, has captured 3% of Visa’s card base and 18% of its transaction volume. Now that the product has had a chance to mature in the marketplace, “We want to get behind it with some advertising and positioning in the media,” he said.
Mr. Pascarella compared the trajectory of the Signature Card to that of the Visa Check card. “We had that out in the market for about two or three years before we did any advertising whatsoever,” he said. “We made sure the functionality was there, we made sure it was working for the banks, and then” the heavy marketing followed.
U.S. Bancorp and JPMorgan Chase are among the larger Signature issuers, and both issue it primarily in conjunction with cobrand deals. Mr. Pascarella said Signature has “resonated very, very well with the focus groups we have had” and that aligning it with a cobrand is a good way for banks to make the most of the product and to differentiate it from what American Express and other brands offer. Signature is “our fastest-growing consumer product to date right now,” he said.
On a separate matter, Mr. Pascarella said that Visa will not be among the bidders for the National Processing Co. division of National City Corp. The Cleveland banking company hired Morgan Stanley in May to find a buyer for the card processor, of which it owns 83%.
Mr. Pascarella pointed out that National Processing is both a merchant-acquirer and a processor. “We have never been in the acquiring business, because it would compete head-on with our member banks,” he said. “We’re there to support our member banks. We’re there to support the acquirers.”
