Processors Plant Seeds Of Network Growth

  First Data Corp., which owns the majority of the NYCE electronic funds transfer network, and Concord EFS Inc., which owns the Star network, are not the only processors using EFT networks to propel growth. Fifth Third Processing Solutions, a division of Cincinnati-based Fifth Third Bancorp, is developing a strategy to grow its Jeanie network, while Brookfield, Wis.-based Fiserv Inc. is working to consolidate its four networks to reduce members' gateway costs.
  Fifth Third executives say their customers view Jeanie as playing a unique role in a shrinking industry that is resulting in fewer network choices.
  "Jeanie continues to be a very important part of our strategy, and there are things we intend to do from a sales and marketing perspective to enhance that role," says Paul Brunner, Fifth Third senior vice president, declining to discuss specific tactics being planned. "We need Jeanie to play in this space as a national network, whereas traditionally it has been a regional network."
  Jeanie is the nation's 12th-leading point-of-sale debit network and seventh-leading EFT network overall. In March, Jeanie cardholders initiated 992,000 purchases and 14.4 million automated teller machine transactions.
  Brunner says that moving forward, Jeanie will continue to balance the needs of its issuing and merchant clients. Jeanie's acquirer-paid interchange rates, though, appear to side more favorably with merchants. And this may be helpful as Fifth Third looks to expand merchant acceptance of Jeanie cards.
  Jeanie card issuers earn a flat 11 cents in interchange per personal identification number-based purchase. Comparatively, Pulse EFT Association network issuers earn 18 cents, while the Star and NYCE networks, which have adopted tiered rates that benefit high-volume merchants, have capped interchange payments to issuers at 34 cents and 40 cents per purchase, respectively.
  Though Brunner would not say whether Fifth Third will raise Jeanie's rates, he says working to balance the needs of issuers and merchants will drive Jeanie's pricing and overall strategy.
  For Fiserv, which acquired the Accel/Exchange, TX, MPACT and Instant Teller networks from Electronic Data Systems Corp. in late 2002, the need to reduce costs and provide better performance led to a decision to consolidate the networks into two single brands-Accel for PIN-based POS debit transactions and Exchange for ATM transactions. EDS actually had planned to consolidate the networks before the Fiserv acquisition ("The Direct Route in Debit Processing," February).
  "By consolidating the brands, we can provide a card base that covers the country," says Kevin Gregoire, Fiserv senior vice president for products and networks. "And it effectively makes it so we can keep more transactions on the combined network than on the sum of the other networks'."
  Historically, some of the EDS networks did not have reciprocal agreements to recognize each other's cards. So when an Instant Teller card was used in an Exchange terminal, for example, frequently the transaction would route through another network in place of Exchange, Gregoire says. Now Fiserv can keep the transaction on the Exchange network where fees to Fiserv clients are lower than other networks', he says.
  As a processor with direct connections to all of the major networks, Fiserv does not need to use Accel/Exchange to gateway transactions to other networks for its processing clients. Some third-party gateway providers similarly provide this service.
  In another strategy, processors that own their own networks are heavily discounting the "on-us" transaction fees where a network card is used at a network ATM to keep it within the network they now own. And this strategy is not going unrecognized by third parties that provide gateway connections for small processors and networks that do not have direct connections to EFT networks.
  "There's more going on that has to do with keeping the transaction on-us and enhancing the value proposition that a processor can bring to market," says Rob Myhre, a vice president at Scottsdale, Ariz.-based processor eFunds Corp. "That's how the combined network/processors are playing the game."
  Myhre says eFunds is putting together a counter-strategy, but he declines to say what that strategy will be.