The EFT Networks' Mixed Results

  It's no surprise that electronic funds transfer networks that support their own personal identification number-based point-of-sale debit brand are getting most of their growth from purchases rather than automated teller machine transactions. Some networks, however, are benefiting more than others from the continued double-digit growth in POS debit.
  While overall POS network debit volume increased 25.3%, to 522.8 million transactions in March from 417.2 million in March 2003, ATM volume grew by just 3.3%, to 249.9 million transactions from 241.9 million, according to the new EFT Data Book published last month by ATM & Debit News, a CCM sister publication. ATM&Debit News estimates that when financial institutions' on-us ATM volume that the networks do not see is included, overall ATM activity in March grew by just 1.9%, to 919.2 million transactions from 902.3 million the previous March. On-us activity represents the lion's share of U.S. ATM transactions.
  As in past years, Star, which in February was acquired by Greenwood Village, Colo.-based First Data Corp., had the largest volume of in-network POS debit and ATM activity. Star's 15.8% growth in POS transactions, however, did not keep pace with the market's overall growth rate.
  Star switched 243.8 million network POS debit transactions in March, up from 210.5 million the previous March. Star's network ATM switch volume dropped 9.8%, to 79.5 million transactions in March from 88.1 million in March 2003.
  Much of Star's growth in both POS and ATM activity was impeded by Visa USA, whose Interlink POS and Plus ATM networks took over from Star several large debit card issuer and ATM deployer contracts, including those of U.S. Bancorp and Wells Fargo & Co. Interlink experienced a 48% jump in POS debit volume, to 103 million transactions in March from 69.6 million in March 2003.
  "Star lost some card customers, and over time that has an effect," says George Albright, chairman of the Atlanta-based Speer & Associates consultancy.
  Large issuers, however, are only part of the mix. Some networks, particularly the Houston-based Pulse EFT Association, have experienced growth by focusing on mid-size and small financial institutions. Pulse added 380 new financial-institution members over the past year.
  Increases in merchant acceptance also are driving network growth. More major merchants, such as the Gap Inc. clothing retailer, now accept Pulse and other PIN-debit brands, notes Cindy Ballard, Pulse executive vice president.
  "There are large organizations that are just now adding PIN debit," she says.
  Pulse, now the third-largest POS network, is reporting 34.8% growth in POS debit activity, to 59.6 million transactions in March from 44.2 million in March 2003. Montvale, N.J.-based NYCE slipped behind Pulse to become the fourth-largest PIN-based POS debit network, switching 57.4 million purchases in March, up 16.1% from 49.4 million in March 2003.
  Albright notes that geography still plays a role in network transaction growth, as the cardholder footprint for Interlink issuers, for example, is growing faster than that of NYCE. And Albright believes First Data this year will be much more aggressive in fighting back challenges to Star from Visa's Interlink.
  Also shaking up the POS network market is an increasing number of large merchants, or their acquiring banks, that are negotiating network-routing contracts directly. In some cases, the merchants are bypassing issuers' network preferences, says Tony Catalfano, president of Brookfield, Wis.-based processor and network owner Fiserv Inc.
  Fiserv's Accel/Exchange network experienced only a 7.5% rise in POS volume in March, to 17.2 million transactions from 16 million in March 2003. Catalfano says the network's typical year-on-year monthly POS debit growth actually is more than 19%. However, in March the network was negotiating with several large merchants over routing priorities, causing Accel/Exchange volumes to dip during the month.
  Catalfano says merchants have become much more aggressive in renegotiating special network-routing pricing apart from publicly stated network interchange rate policies. Their aggressiveness began shortly after Visa USA and MasterCard International in the spring of 2003 settled a merchant class-action lawsuit over signature-debit interchange rates and debit card policies ("The Retailers' Home Run," July 2003).
  Generally, when multiple network brands are on the same debit card, merchants are choosing lower-cost networks to route the transaction, says Catalfano. Large merchants, however, are still honoring issuers' priority-routing specifications when a debit card has one network mark on it, he says.