ATM&Debit News

Bank of America Corp.'s recent pricing agreement with MasterCard Inc. for debit cards that the retail banking giant does not issue could be an effort to remind Visa U.S.A. Inc. it has other suitors.

The Charlotte company owns 5.49% of MasterCard's Class M stock. Now that the Purchase, N.Y., credit card company is publicly traded, it is obligated to file notices with the Securities and Exchange Commission when it changes any of its business arrangements with customers who own more than 5% of its shares.

In a filing Dec. 27, MasterCard disclosed that an agreement with B of A had been "amended to include new pricing arrangements in exchange for transaction volumes related to the issuance of MasterCard-branded debit cards by Bank of America."

B of A issues Visa and MasterCard credit cards, but only Visa debit cards. However, a deal struck in May permits B of A to issue MasterCard-branded debit cards.

MasterCard and Visa pay issuers for delivering a certain amount of transaction volume to their networks. B of A is the largest issuer of debit cards in the United States, with about 22.3 million in circulation in 2005. The company reported that its cardholders generated $124 billion of debit purchase volume in the first three quarters of last year.

Tim Sloane, the director of debit advisory services for Mercator Advisory Group Inc. of Waltham, Mass., said the SEC filing suggests that B of A will begin issuing MasterCard-branded debit cards soon.

"My guess is the earlier contract prevented them from deploying the debit cards," he said. "This new contract has probably eliminated whatever that roadblock was."

In October, B of A and Visa renewed their long-standing card-issuing partnership through Dec. 31, 2011. The renewal was retroactive to Jan. 1, 2006. It is unclear whether that agreement would let B of A issue debit cards using any brand other than Visa's.

A MasterCard representative would not elaborate on the filing, but the company said that it "has reached an agreement to further build its business with Bank of America."

Whether the MasterCard debit-pricing change was just a formality that now must be disclosed, or a move intended to catch the public's eye, it would not be out of character for Kenneth D. Lewis, B of A's chairman and chief executive, to use it as a way to threaten Visa.

In April, Mr. Lewis told The Wall Street Journal that he was unhappy his company had spent years helping build its progeny brand, Visa, when it could have spent that money to build its own brand.

Mr. Lewis later backtracked a bit from that language, but he ruffled feathers within the industry when he suggested that B of A might be interested in building its own network to carry card transactions.

Bruce Cundiff, a senior analyst at Javelin Strategy and Research, said several scenarios are plausible.

If B of A's debit agreement with Visa includes a buyout clause, MasterCard theoretically could offer a deal worth enough to offset the exit fee, he said, but that would certainly cost MasterCard dearly - in up-front costs, dramatic pricing benefits for B of A, or both - and the costs may not sit well with MasterCard's new owners.

"MasterCard has to cater to Wall Street, and Wall Street has to see that as a viable investment," Mr. Cundiff said. "If it's very thin margins, only a lift in the number of … [MasterCard debit cards], and not necessarily a revenue lift, that's a problem."

Another possible scenario is that B of A is simply planning ahead to 2012, when its debit partnership with Visa expires, though five years is "an eternity" in the card business, Mr. Cundiff said.

Still, maintaining debit rights with both networks can only strengthen B of A's bargaining position with both networks, he said.

What is certain is that B of A's relationship with Visa and MasterCard will evolve now that one has gone public and the other is planning to so, according to Mr. Cundiff.

"It partly diminishes the power that B of A has, but it's also giving them leverage to play both ends against the middle," he said.

"This is another example of MasterCard's willingness to bend over backward to go for a large issuing portfolio. Visa's twice as big," but MasterCard is "like Avis: 'We try harder,'" Mr. Cundiff said. "They really want to work with these issuers."

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