A New World for Payments

  Capital One Financial Corp. appears to have found a way to compete with companies that support automated clearinghouse payments. Such efforts are designed to help merchants reduce their transaction costs by displacing purchases initiated with more-expensive, bank-issued debit and credit cards.
  With Cap One's product, consumers can go to a participating merchant location and obtain their own debit card to access their demand-deposit account, regardless of the bank that holds the funds. Transactions are authorized through the MasterCard network (see story page 8).
  Such a product, if successful, could create headaches not just for issuers that today generate billions in interchange fees when their cards are used to make purchases, but Visa USA as well, which has a stronghold on the traditional U.S. debit card market.
  But don't count on Visa throwing its support behind a similar product. After all, Visa as it is operated today, has different motivations.
  In an e-mail message responding to the Cap One initiative, a Visa spokesperson cautioned that such a product has the potential to disadvantage both financial institutions and their customers, as it breaks the direct relationship between the parties of a transaction.
  "This in turn can inhibit a financial institution's ability to manage and resolve consumer and merchant issues that may arise related to security, rewards and dispute resolution, among other issues. It is, in part, for these reasons that Visa's rules today prohibit the use of Visa cards for programs such as these unless the depository financial institution consents," the spokesperson said.
  Such comments ring of an association protecting not just its members, but also the traditional payments architecture it helped create with those members. I'm wondering if Visa would have made a similar statement if it, like MasterCard, were a public company, which it plans to become by next year, and its chief goal becomes generating profits.
  Here's how MasterCard responded to my request for a comment. It mixes some old thinking with new: MasterCard's core strategy is to focus on the needs and profitability of our customers by helping them execute their strategies. MasterCard is committed to growing debit for all parties and partnering with banks that want to deliver innovative and competitive products to their customers."
  MasterCard's response sounds less-protective and more supportive of finding ways to help not just one its partner issuers, but its own bottom line as well.
  Visa and MasterCard, along with some of the largest card issuers, have worked together in the past, perhaps too much so, to create similar payment architectures. But the new world of payments brought on by merchant antitrust litigation already is demonstrating that the old rules for brand and issuer relationships essentially are out the window.
  (c) 2007 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
  http://www.cardforum.com http://www.sourcemedia.com