Are Visa and MasterCard on the Right Track?
Arend, Mark, ABA Banking Journal
According to Visa U.S.A., debit cards are now "check cards." According to MasterCard International, home banking is now "remote banking." Such changes are more than mere semantics. They are part of emerging strategies that the bank card associations are undertaking to boost transaction volume and broaden their members' ability to offer transaction services.
While that may sound like business as usual, some card industry participants, including some bankers, are troubled by strategies the associations are pursuing--and a few they are not pursuing--at a time when card profits are sliding and the future of banks' role in the payments system grows cloudy.
"Bank card programs across the country are getting less and less profitable, and that's the major issue of the 1990s," says Jim Hendershot, CEO of the credit card unit of U.S. Bancorp, Portland, Ore. "This is not going to be a 3% after-tax ROA business anymore. Soon credit cards will be like any other form of consumer lending, so we're going to have to watch our costs and our risk exposure."
Visa and MasterCard are presenting their initiatives to the industry in increasingly diplomatic terms as some member banks attempt to do themselves what the card associations are doing.
Home banking is a good example of the fine line the card associations now walk. On April 27, Visa joined forces with Intuit, Inc. (Menlo Park, Calif.), a personal financial management software company, to provide financial information services to homes and businesses through member institutions. Two days later, MasterCard unveiled its MasterBanking strategy for providing electronic financial services to consumers via bank members. The first manifestation of the plan was the formation of an alliance with Checkfree Corp. (Westerville, Ohio), an electronic payment-processing company, which last year processed over $3.6 billion in electronic payments.
"These programs provide a way for more banks to offer [remote] banking services," says Hendershot of U.S. Bancorp. "The associations are trying to corner the payments world, which increasingly is closer and closer to the point of sale, the home, or the place of business."
At the same time, several banks are readying their own home-banking offerings, which could in turn be marketed to other banks. Is there a potential conflict between banks and the associations?
"I don't have a problem with [the associations' remote-banking efforts], but some bankers I've spoken to have a problem with it," says William Randie, senior vicepresident at Huntington Bancshares, Columbus, Ohio. "The entire payments system in this country is in a bit of a turmoil, and the critical issue here is to figure out where it's going."
Adds Randie: "The card associations say that if they don't step in and do the job, a nonbank entity will, and that may be true. They're protecting the banks, or maybe just their turf," he continues. "It's complicated, especially because the card associations are bringing more and more nonbanks into the payment arena."
Huntington is one of several banks preparing to launch a screentelephone product in the near future.
Meanwhile, Banc One Corp. is test marketing a screen-phone system called ScanForte. A service of U.S. Order, Herndon, Va., ScanFone lets consumers electronically pay bills, execute noncash automated teller machine transactions, and order merchandise from catalogues, retail stores, and food outlets. U.S. Order and Banc One also have agreed to study the merits of establishing a new national electronic bill payment system capable of processing large volumes of electronic transactions.
The joint venture was announced in April. Craig Kelly, a Banc One senior vice-president, said at the time: "We believe that this is a logical transformation that can take place over the next ten foears and feel that it is important for the banking industry to take the leadership and control position t o develop the system. …