Regional electronic banking networks, long wary about the competitive motives of the bank credit card associations, have turned downright hostile toward a recent Visa U.S.A. initiative.
The regional automated teller machine and point of sale operators see the new Visa check card, announced in May and due to be available Oct. 1, as a threat to their survival.
Holders of the new card will be able to use it either off-line, with a delay in transaction clearing similar to that of credit cards, or on-line. In the on-line mode, the cards will compete against those of the regional networks.
Visa rules prohibit regional network marks like NYCE and MAC from residing on the new check card. Because regional networks do not accept POS transactions from cards without their logos, merchants would be forced to route the on-line transactions through Visa's network.
Dennis Lynch, president and chief executive officer of NYCE Corp., Woodcliff Lake, N.J., called this "the most substantial and direct threat to our main-line business."
Richard N. Garman, president and chief executive officer of Electronic Payment Services Inc., the Wilmington, Del.-based owner of the MAC network, called Visa's move "astonishing" and said the ban on network logos "smacks very heavily of anticompetitive practices."
Mr. Garman said Visa is taking the power of the routing decision away from the merchant. He likened it to "Coke saying, 'I'll sell you my product, Mr. Grocery Store, only if you don't allow Pepsi on the shelves.'"
Visa officials say they are not trying to antagonize the networks. Their aim is to displace cash and checks. Debit cards accounted for only about 1% of consumer payments in 1995; an Andersen Consulting study predicted that will rise to 10% by 2001.
Visa said the new product will be less expensive for merchants and offer greater security for consumers, who can get the added fraud protection inherent in an on-line debit transaction.
The association said the check card takes advantage of the proliferation of on-line terminals with pads for entering personal identification numbers, currently 1.3 million nationwide and growing 70% a year.
Tony McEwen, executive vice president for deposit and cash products at Visa in San Francisco, said member banks have had an "extremely positive" reaction to the product and to the idea of centralizing transactions on Visa's network.
"The requirements of having to deal with multiple providers of on-line services can be pretty onerous," Mr. McEwen said. The complexities of the regional networks' rules were "driving banks to us saying, 'Isn't there a better solution?'"
"We owe it to the owners of our association to make sure that Visa has an effective, competitive product to offer that marketplace," Mr. McEwen said.
But the result could be less business for the regionals.
"If Visa takes over the on-line POS business as well as off-line, I think the era of the regional network is beginning to come to a close," said electronic banking lawyer David B. Lipkin, a partner in Drinker Biddle & Reath, Philadelphia.
Mr. Lynch said antitrust issues might arise. The Visa announcement "comes at a very interesting time, given what the government is looking at"-a reference to an ongoing inquiry against the bank card associations and their rulemaking practices.
A lawyer familiar with the federal probe suggested the debit card tangle might influence the government's long-pending decision on whether to sue Visa.
On-line debit has been a growth bonanza for the regional networks. NYCE and Honor Technologies Inc. of Maitland, Fla., both recently reported record highs in monthly point of sale volume.
The regionals acknowledge that acceptance of their brands is far from the universality that Visa enjoys. They have been trying to broaden their reach by striking deals with national retailers for nationwide acceptance.
Mr. Garman, however, defended the role of the regionals: "Consumers have a very high recognition level of the regional marks and also the value- added services you get through the regional accesses."
David Campbell, executive vice president of strategic planning at KeyCorp, Cleveland, said the conflict puts networks in an awkward position.
"Visa's leadership is forcing everyone to rethink their position," he said. "It certainly is a battle looming."
Consolidation has spurred interest in a "national mark" that banks can "unify behind," Mr. Campbell said, "and that was not forthcoming from the regionals." On the other hand, the regional networks "fulfill a very valuable role in switching transactions and driving terminals, and I don't see that changing."
Mr. Campbell said "the value of the regional marks has been further eroded by this announcement."
There are signs the regional networks are taking notice. Industry sources say several networks are engaged in formal discussions about mergers or collaborations that would create nationwide franchises. Among the potential partners, the sources said, are Honor of Florida and Star System Inc. of San Diego. If those two companies did team up, they would form the first "regional" network that spanned the continent from Atlantic to Pacific.
The network brands once were common on the front of ATM cards, but more recently, their names have been relegated to the back. MasterCard and Visa rules allow only their names and those of issuing banks on the front of cards.
Mr. McEwen defended Visa's strategy as "very pro-competitive." He said, "What competition is all about is more people competing for the (same) business in a logical fashion."
"We're providing the capability for the consumer to perform the transaction the way they want to perform it anywhere in the country," he said. "With this new product, it is my anticipation that the transaction is going to get through the system as safely, effectively, and quickly as it does today, and we think that's an important deliverable for consumers."
An announcement similar to Visa's may be forthcoming from MasterCard International. The Purchase, N.Y.-based organization has said only that it is "actively working" to address the evolving debit card market, expecting to introduce its own "solutions" in a "timely manner."
The Visa check initiative caught the notice of MasterCard's debit affiliate, Maestro International, and it chief executive officer, Francis van den Bosch. He said he viewed Visa's U.S. announcement as a tactic to "ride the wave of PIN terminals" and saw it as a sign Visa has "crystallized its thinking" about on-line debit.
MasterCard and Maestro have defined a global battleground for on-line debit, and it is one of the few payment categories in which they can claim a numerical advantage over Visa. They contend that their single global system and brand over time will prevail over Visa's historically more fragmented approach.
At a MasterCard meeting in Paris Mr. van den Bosch said Maestro aims to account for two-thirds of a projected on-line debit card total approaching one billion worldwide in 2002. The Maestro number is now 205 million, including 113 million in Europe and 33 million in the United States.
Like a regional network card, the new Visa card would provide on-line authorization with customers entering their PINs rather than signing a draft.
The interchange rate varies by type of merchant. At supermarkets, the interbank fee, which influences the merchant discount, will be a flat 25 cents. At other retailers, the fee will be 55 basis points plus 10 cents, which would amount to 32 cents for a $40 transaction.
The pricing is lower than the 140 basis points charged for Visa's off- line card and higher than network levies that range typically from 5 to 11 cents.
"The root of this is the pressure coming from the larger issuers to increase income" from on-line POS transactions, said Stan Paur, president and chief executive officer of Pulse EFT Association of Houston.
Mr. Paur said the "consternation" among network executives stems in part from concerns that banks signing up for Visa check would have to drop out of the regionals.
"My biggest worry is that this could invite further scrutiny of the payment process and ultimately government control over the debit business," Mr. Paur said.
If the bulk of Visa issuers adopt the product, many experts expect the networks will have to match Visa's pricing.
The regional networks "are going to have to come up with a way to make it more lucrative for the issuers to continue to preferentially promote on- line debit through them," said Mr. Campbell of KeyCorp.
Mr. Garman of EPS said "there has been a reluctance on the part of issuers to promote (the regional networks' debit) product because of the artificially low interchange."
Though he condemns the Visa branding restrictions, Mr. Garman said he welcomes any upward pressure on POS interchange. He said MAC, which charges 6.5 cents a transaction, will announce a new interchange rate in the next few months closer to that of Visa's on-line card.
A wild card in the debit debate is pending litigation between major retailers and the bank card associations. Wal-Mart, The Limited, Sears, and other chains-and their trade associations-are challenging the rules that require stores accepting credit cards also to accept off-line debit cards, which carry higher interchange rates than on-line cards.
Mr. McEwen of Visa said the new on-line/off-line product is "not at all a response" to the lawsuit, filed in U.S. District Court for the Eastern District of New York, Brooklyn.
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SAN FRANCISCO-A Visa U.S.A. survey of 98 purchasing managers found 67% do some electronic purchasing. An additional 18% intended to start doing so within six months.
Among those who already bought supplies on-line, 55% ordered directly from World Wide Web sites and 36% used intranet-based software. Thirty percent said their electronic purchasing system was linked to a purchasing card program.
Though electronic purchasing is on the rise, Visa found that companies are not abandoning traditional ordering methods. In a separate survey of 84 purchasing managers, 83% said they continued to order goods under $5,000 via telephone, fax, and mail and to pay for them by check.
The surveys, which included personal interviews, were conducted during a recent conference in Dallas sponsored by the National Association of Purchasing Management.
"The industry is clearly on the brink of change," said Bruno Perreault, senior vice president of commercial card products at Visa. "Purchasing managers are pressed to streamline the purchasing process and are increasingly looking to innovative methods to realize cost savings."
