EFT Network Selection: A Matter of Opinion

  Compass Bancshares likes its relationship with Visa USA. In fact, about 65% of the issuer's 1.5 million debit cards are supported solely by Visa's products: Visa check card for signature debit, Interlink for PIN-based purchases and Plus for international ATM access.
  The Birmingham, Ala.-based bank, however, purposely did not place all of its debit cards in Visa's basket. Instead, the issuer is using First Data Corp.'s Star EFT network to route PIN-based purchases and domestic ATM transactions on its remaining cards.
  "We're staying with Star for some cards to ensure we have a value proposition that allows us to maintain a competitive playing field," says John Yarley, Compass vice president of debit and prepaid products. "The other reason is market dynamics. Who knows what's going to happen next, and we need to make sure we're set up so we're flexible enough to address changes, whatever they may be."
  Both Visa and MasterCard Worldwide, which offers debit MasterCard for signature debit, Maestro for PIN-based purchases and Cirrus for international ATM access, have been flexing their marketing muscle to promote themselves to issuers as one-stop shops for debit services ("More Issuers are Embracing A Single Brand's Offerings," November). With the card organizations' broad debit reach, are the other EFT networks still relevant today?
  The consensus among EFT networks, card issuers and industry observers contacted by Cards&Payments suggests they are, if for no other reasons than those Compass cites. But the days of participating in several "regional" EFT networks to support broad PIN-debit acceptance at ATMs and payment terminals appear to be a thing of the past.
  "We don't have 'regional' networks any longer; we have a strong set of national networks out there," says Chris Allen, senior manager at Dove Consulting, an Atlanta-based consultancy.
  Indeed, the competitive pressures placed on networks by Visa and MasterCard have been growing "dramatically," says Mike Williams, senior vice president of Brookfield, Wis.-based Fiserv Inc., which owns the Accel/Exchange EFT network. "The competition has increased to all segments of the market. That's the biggest difference now. It's expanded to all the issuers out there," Williams says. "It's made all of the networks focus more on creating different value propositions to make things stand out."
  As such, EFT networks not associated with Visa and MasterCard would be wise to review their strategies. "If they don't watch it, they may get their clocks wound," says Gary Jewell, executive vice president at Carrollton Bank in Baltimore. "They just need to make a decision to stay on top of this and continue to take care of their middle-tier customers out there."
  Even Carrollton, which issues just 8,000 debit cards, has been approached by Visa offering an all-in-one debit service. "I'm not a proponent of doing that myself, as I don't believe, for one thing, we should be beholden to one network," says Jewell. "Diversity is good, but not as good as it used to be. Still, participating in one or two other networks is a good thing."
  Fiserv's Williams says Visa and MasterCard may provide financial incentives to issuers to encourage them to tie their cards to a single brand. "But at the end of the day, many issuers feel they won't get the attention and inclusion in the control of that network," he says. "We say to them, 'If you'd like to have a signature brand plus Interlink participation, do that in conjunction with Accel/Exchange. Then you haven't committed all your eggs to one basket.'"
  Accel/Exchange, the nation's fifth-largest EFT network in terms of in-network volume, switched 34.8 million PIN-based purchases and 4.6 million ATM transactions in March. There are some 100,000 ATMs and 3.5 million POS terminals tied to the network.
  The network offers issuers control over decision-making, more so than do Visa or MasterCard, Williams says. The network's Advisory Council, composed of network-member issuers, determines which new products roll out as well as strategic policy and network pricing. "It's the amount of control that network participants have that we've felt is one of the important aspects of the network," Williams says.
  But Dove's Allen says issuer control is not among the leading factors issuers use to decide with which networks to participate. Instead, Dove's discussions with issuers suggest the more-important factors are card acceptance, network service area, ability to generate revenue, reliability, and fraud- and risk-management capabilities.
  And Allen sees all EFT networks competing based in large part on those terms. "It's very competitive, more so than five years ago," he says.
  Dave Schneider, president of the Pulse EFT network owned by Discover Financial Services, says he is aware of Visa's and MasterCard's increased competitiveness in EFT processing. But he stresses that the Houston-based network also offers a full complement of national offerings, particularly for POS debit.
  "A number of institutions have elected to place PIN debit with us and to rely on us as their sole network for that purpose," Schneider says, referring to POS debit.
  FILLING A VOID
  Pulse, though, is working to fill its ATM void. While Pulse institutions typically rely on Cirrus or Plus as their international ATM-acceptance marks, Discover has struck reciprocal deals with networks in Japan and the United Kingdom to extend Pulse's ATM reach in those popular tourist areas.
  "We're also pursuing similar arrangements with other regions, particularly where people travel," Schneider says, citing Mexico and Canada as examples.
  Even the smaller networks, Allen notes, can offer services some issuers may believe larger networks cannot provide as well.
  "Sometimes the smaller, regional players can play a specific role for a specific issuer," Allen says. "So some networks remain relevant for very specific reasons. Each is different." He cites networks that specialize in accommodating credit unions as one example of meeting the needs of a market niche.
  TransFund, which operates a Tulsa, Okla.-based ATM network that switched 3.4 million in-network transactions in March, works to differentiate itself from the larger networks and transaction processors through education. This includes helping issuers stay up on the latest trends and understand interchange and how to manage their interchange income, says Bob Snyder, senior vice president and director of marketing.
  "That's really our marketing focus and has been since I came to TransFund in 1988," he says, noting the institutions TransFund serves typically range in size from $50 million to $700 million in assets. "Financial institutions aren't being told these kinds of things by their typical EFT processor."
  Another small ATM network, U.S. Bancorp's Fastbank, contends larger networks generally are more focused on POS debit. So there still is value for issuers to participate in a network with specific expertise in ATM processing, says Jan Estep, executive vice president of the bank's Transaction Services division. "Fastbank doesn't say you can't belong to another network," she notes. "But an ATM-only network provides flexibility while providing the benefits on the ATM side."
  Bank philosophy also can play a role in network choice. Compass' Yarley says he prefers working with Visa because of its emphasis on signature, or offline, debit, which generates more interchange revenue than PIN-debit purchases. Some EFT networks do, he says, promote PINless debit for online bill payments, whereas Compass would prefer that those transactions be routed as offline debit payments.
  DEBIT INDIFFERENCE
  Other networks are focused on meeting members' processing needs, regardless of the type of debit activity. Shazam, for example, knows its brand is accepted for purchases in 42 states. But if a member's cardholders go outside the Johnston, Iowa-based network's service area, Shazam does not feel adversely affected. The network knows they can use their cards instead to conduct offline-debit transactions.
  "We haven't experienced any problems," says Dan Kramer, Shazam senior vice president. "Shazam is a not-for-profit, so we're about providing value to the financial institutions we serve. That value can be in the brand, processing and access to the point of sale through Visa and MasterCard that we offer already."
  Consolidation has caused the number of EFT networks to drop from dozens a decade ago to less than two dozen today. Those that remain often are bigger, but they also may have a specialty that issuers still find beneficial, regardless of their size.
  (c) 2006 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
  http://www.cardforum.com http://www.sourcemedia.com