Visa U.S.A. and MasterCard International, seeking to reverse years of industry dogma – and perhaps capitalize on the intense interest issuers and merchants alike have in managing their payment network options – are actively promoting their automated teller machine networks as a first choice for banks.
MasterCard’s Cirrus and Visa’s Plus have long served as the last-resort networks — the systems to carry ATM transactions when no other networks were available. But as regional ATM networks have evolved into national ones, the number of last-resort transactions has fallen.
In a bid to get banks to use their networks as their own primary ATM carrier, Visa has strengthened its capabilities and cut some rates. MasterCard said it also wants banks to use it as their primary network.
Stacey Pinkerd, Visa’s senior vice president of consumer debit products, said the San Francisco credit card association has spent the past few years investing in the Plus network and trying to “break down the misconceptions” among banks that viewed Plus only as a backup.
For example, Visa has tried to improve its ability to offer stand-in processing during a disaster when ATMs may not be able to communicate with issuing banks, and has developed a shared deposit-taking capability. In 2004 it formed a surcharge-free alliance to make transactions less expensive for consumers. And this month it lowered a key fee for issuers.
When people use an ATM that is not operated by their bank, the ATM operator charges the bank a fee, typically about 50 to 55 cents per transaction. Earlier this month Visa reduced surcharge rates for some ATMs — those with limited functionality and less robust security features that are commonly found in merchant locations — to 40 cents. More robust machines still charge 50 cents. MasterCard charges 50 cents.
Plus and Cirrus have always had the most extensive coverage of the ATM networks — almost every ATM in the country is connected to at least one of them. But Mr. Pinkerd said the card companies’ networks have suffered from the belief that they are not as effective as other ATM networks. The chief reason for this view is that Plus and Cirrus tend to have lower overall transaction approval rates than competing networks, he said.
But Mr. Pinkerd said, “the Plus network has significantly higher transactions on credit card and international transactions, and those transactions have significantly higher denial rates.”
Credit card cash advances are denied more often than ATM withdrawals, because many people do not know their PINs for their credit cards, Mr. Pinkerd said. “If you take approval rates for domestic debit transactions, you see that Plus operates on par with other networks,” he said.
Leland S. Englebardt, the vice president for debit channel management at MasterCard, said the Purchase, N.Y., company is following a similar strategy.
“In 2003, we eliminated our positioning as the switch of last resort,” Mr. Englebardt said. “Our position now is we encourage our issuers to make us the switch of first resort, and our rules obligate acquirers to follow the priority routing instructions from the issuer.” He said that several banks have made Cirrus their primary ATM network, but he would not name any.
The network-of-last-resort concept worked well for Visa and MasterCard when the ATM industry used a balkanized map of small regional networks. When a customer tried to use an ATM far from his home, there was a good chance the machine would not be connected to the same network as those in the customer’s home region, and the transaction would default to either Plus or Cirrus.
But the consolidation of regional networks has made this function far less important. National coverage is now the norm among many of the major ATM networks, including First Data Corp.’s Star Systems, Metavante Corp.’s NYCE, the bank-owned Shazam Inc., and Pulse EFT Association, which is owned by the Morgan Stanley subsidiary Discover Financial Services Inc.
And as these networks expanded, last-resort transaction volume fell. According to Visa U.S.A., total Plus volume was 49.5 million transactions in December 2001. By December 2002 it had dropped 31.3%, to 34 million. By December 2003, after Visa began promoting Plus as a first choice, volume had climbed 12.6%, to 38.3 million, and in December 2004 it was 46.2 million. Visa’s latest transaction volume, from September, was 56.1 million. (MasterCard does not provide Cirrus numbers.)
“The concept of a regional network doesn’t exist anymore,” said Kevin Barry, the vice president of retail products for Commerce Bancorp Inc. in Cherry Hill, N.J., which in November 2003 switched to Plus from Star and NYCE.
He said that one key factor in Plus’ favor was that Visa’s arrangement allows Commerce customers to use non-Commerce ATMs without paying a fee.
“More of our customers use other machines than other customers use Commerce machines,” Mr. Barry said. “When we started looking at the economics of the Plus network, and the costs for those transactions, it started making sense economically for us to have the Plus network be our primary ATM network.”
Kerry Brashears, the consumer debit card products manager for SunTrust Banks Inc., said the Atlanta company switched to Plus from Star in November 2004.
When SunTrust’s contract with Star was expiring, Star’s then-corporate parent, Concord EFS Corp., was being bought by First Data. That complicated deal required First Data to sell off the NYCE network, which it owned at the time, and the uncertainty surrounding Star’s status was a factor in SunTrust’s choosing Plus, he said.
Another factor in the choice was Interlink, Visa’s PIN debit network that carries merchant point of sale transactions, which SunTrust also agreed to use. By consolidating its network relationships under Visa, SunTrust was able to limit the way transactions are routed for authorization, Mr. Brashears said.
“Merchants are being more creative in the ways they process transactions, based somewhat on the cost to them,” he said. “If we limit the number of networks we participate in, that does somewhat limit the options and provide us with greater control.”
Executives for NYCE, Pulse, and Shazam, declined to comment. Beth Lynn, the senior vice president for network administration at Star, said she welcomed the competition.
For some banks, though, Visa and MasterCard will always be last-resort networks.
Mike Marzec, the manager of electronic banking for First Horizon National Corp., said that the Memphis banking company uses Star and Pulse as its primary ATM carriers, and Plus and Interlink as backup networks, and that he sees no reason to change.
“Visa and MasterCard have really just focused on not being the networks of last resort,” he said. “Unless there’s a compelling reason for an institution to be just a Cirrus or Plus issuing institution, I don’t see it happening.”
