The Associations Avoid an Identifier Crisis

  Millions of redesigned debit cards will be issued as a result of the Visa/MasterCard settlements with retailers, but card executives expect few problems or major new expenses.
  All new debit cards carrying the MasterCard International or Visa USA brands issued after Jan. 1 will have to incorporate debit "identifiers" to differentiate them from the card associations' credit cards. Despite the changes, which are mandated under settlements Visa and MasterCard reached last spring in the Wal-Mart Stores Inc. class-action lawsuit, issuers contacted by Credit Card Management sister publication ATM&Debit News say the redesigned cards will impose little, if any, financial hardship on their card operations.
  In their settlements, Visa and MasterCard also agreed to drop their "honor-all-cards" rules, which require retailers that take their credit cards to also accept their signature-based, or offline, debit products. Starting Jan. 1, merchants will be able to stop accepting Visa check cards and debit MasterCards, and the debit identifiers will make it easier for clerks to spot a debit card.
  The Visa and MasterCard redesigns are different. MasterCard designed a new hologram with the word "Debit" written inside over the existing connecting rings. Visa is requiring issuers to place "DEBIT," spelled in all capital letters, in the upper right portion of the card immediately above the Visa hologram. The letters must be in at least an 11-point font.
  Under the terms of the settlements, issuers must have 80% of their cards reissued with the debit identifier by July 1, 2005, and 100% of them by Jan. 1, 2007. Spokespersons from both Visa and MasterCard say these deadlines should make it simple for issuers to get the newly designed cards to customers within their normal reissuance cycles.
  Such cycles, though, can vary by issuer and how long the organization has issued cards. "If you haven't been in the business for 20 years, you probably have a bubble when cards are up for reissue in your calendar," notes Daniel Engel, senior vice president at Wayzata, Minn.-based TCF Financial Corp., which issues 1.4 million Visa check cards. "So hitting that at the wrong time could be painful."
  TCF, which recently signed a new Visa contract despite becoming angry this summer when Visa said the bank would have to pay $20 million if it chose to issue another brand of debit cards, was in the process of redesigning its cards. The bank put off completing the job for a month or two while it waited for Visa's revisions, Engel says.
  "It was a slam dunk," he says. "Our card redesign allowed us to slide in the word 'DEBIT.'"
  Still, TCF did incur some extra expenses from having to add the debit identifier. "We do have to dump some stock, and it's going to be a write-off," Engel says, declining to discuss cost. "We were fortunate because we had managed our inventories down. Had we just ordered a couple million cards, we would have had a different opinion."
  Financial institutions that issue Visa check cards have the option of using thermal transfer to place the word "DEBIT" on existing card stock. However, some issuers do not have space available on their existing cards to use that option, notes Jimmy Gregory, vice president of operations at Personix, a Houston-based card manufacturer. The same option does not exist for debit MasterCard issuers because the identifier is in the hologram, he says.
  Among the Visa check card issuers that were unable to use thermal printing on existing stock is Charlotte, N.C.-based Wachovia Corp. Wachovia was in the midst of consolidating its card branding in the aftermath of its merger with First Union Corp. The initial card design did not accommodate the debit identifier, says Chris Roberts, Wachovia vice president.
  "We had to redesign the card, and that was the biggest thing we had to do," Roberts says, noting that Wachovia plans to reissue cards to all 4.7 million of its Visa check card holders by mid-2004.
  To help maintain the bank's existing card-reissuance cycles, reissued cards will add two years to the existing cards' expiration dates, he says. "It works well from a cost-savings perspective and serves the customer better because they can keep their plastic longer without having to change card information supplied for recurring payments," Roberts says.
  David Bowen, senior vice president at Cleveland-based Charter One Bank, which issues 1.2 million debit MasterCards, says MasterCard's decision to place the debit identifier inside the hologram prevented Charter One from having to redesign its cards. "That has helped us tremendously," he says.
  Merchant Reaction
  Bowen doubts many merchants will opt to discontinue taking signature debit cards, which cost more to accept in interchange expense than their personal identification number-based debit cousins.
  "My gut feeling is the merchants won't go that route," he says. "They now have some market power in that they can opt out of debit if you raise the interchange rate too dramatically or too rapidly."
  In their settlements, Visa and MasterCard lowered interchange rates for their offline debit cards by about one-third from Aug. 1 through the end of this year. At CCM's deadline they had not yet announced what the interchange rates will be starting Jan. 1.