Visa U.S.A. still has high hopes for the controversial debit card it introduced late last year.
Only seven community banks are issuing the latest version of the card, known as Visa check 2 or VC2. Six others are "in various stages of the implementation process," said Robert H. Baker Jr., the California-based association's senior vice president of debit products.
Most Visa product introductions make a much bigger splash among its thousands of member banks. This one, though, was criticized by retailers because of Visa's pricing policies, and by regional electronic funds transfer networks because VC2 transactions would bypass them.
But Mr. Baker said the program is not at all off course. Visa did not expect mass adoption until next year, after banks get past their year-2000 overhauls and, in the case of some major card issuers, merger integrations.
"These days our banks are dealing with what are clearly more pressing issues," Mr. Baker said. "We are aware of a number of significant debit issuers who plan to move to check card 2 after the year-2000 freezes have gone away."
VC2 appears to be a tougher sell than the Signature card, which Visa designed for wealthy, frequent travelers. Unveiled in March 1998, seven months before VC2 became available, Signature was adopted first by Associates National Bank of Wilmington, Del., and other big credit card issuers followed.
On the debit side, both Visa and MasterCard are fighting a federal antitrust suit by major retailers challenging rules that require equal acceptance of all their branded cards, credit and debit.
Two grocery chains, Kroger Co. and Publix Super Markets, sent letters to their banks, urging them not to issue VC2, which costs retailers less than the standard off-line debit cards but more than the on-line cards processed through regional electronic banking networks such as Star and NYCE.
VC2 offers the flexibility of being used like a credit card, with an authorization and signature obtained at the point of sale, or like an on- line automated teller machine card that requires a personal identification number. There is also an option to get additional cash back at the point of sale, with the debit to the account cleared through the Visa network.
Few consumers know those details-and this is by design. Consumers "won't know the difference, so there is no point confusing them," Mr. Baker said.
He called VC2 "a very logical next step in Visa's strategy to mainstream this payment category."
In 1995 Visa set out to increase debit as a percentage of total consumer payments-from 1% of what was then a $3.8 trillion market, to 10% of what was projected to become a $5.4 trillion market in 2001. Last year, Mr. Baker said, "we were approaching 3% of total consumer spending on debit, so we still have a way to go."
He said the proliferation of terminals with PIN pads at the point of sale prompted development of VC2. PIN terminals increased at a compound annual rate of 70% between 1992 and 1997, and 40% in 1998, he said.
"We believe consumers ought to have all the choices they can," Mr. Baker said. Two driving forces behind VC2 were "the explosion of PIN pads" and a consumer perception that PINs make for "a more secure transaction."
Customers with VC2 cards from Saratoga (Calif.) National Bank, the first issuer in the program, are not aware of the nuances, said Stephanie Bramschreiber, a credit analyst at the bank.
"Nobody specifically comes in and asks for" VC2, she said. "They like the Visa check card over the regular ATM card but not necessarily the check card 2 over Visa check card 1." She said she did not know the mix of on- and off-line transactions.
Saratoga National's replacement of the old Visa check card with VC2 "really hasn't made much of a difference," Ms. Bramschreiber said. "I think we were used as a guinea pig for the product." She said the Independent Community Bankers Association and its processing partner, Equifax Inc., were eager to promote and test it.
The ICBA says VC2 offers competitive advantages for community banks that lack affiliations with regional networks. Equifax Card Services, Total System Services Inc., and Fiserv Inc. are among the processors certified to handle VC2, Mr. Baker said.
"We are aware of several large issuers that have requested check card 2 BINs (bank identification numbers) and some who in fact certified their own systems for check card 2," Mr. Baker said.
Because all VC2 transactions are routed through Visa, the cards cannot carry the logos of ATM networks, some of which have very strong regional identities. Thus, network executives see the product as a threat.
According to Visa, a merchant would pay 47 to 50 cents for a $40 transaction on a regular off-line debit card. The same transaction with VC2 would cost 25 to 27 cents. An on-line card transaction through a regional networks would cost about 10 cents.
"Yes, we are competing with regional ATM networks, but that's one of the things that a leader in the marketplace does," Mr. Baker said. "Our customers are the banks, and the banks would like to replace as many paper checks with electronic transactions as possible. That means continuing to search for innovative ways to displace cash and checks."