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Visa Inc. made two deals last week that bolster an already lucrative debit card
portfolio. The deals came just days after Byron Pollitt, Visa chief financial officer,
told investors Visa's debit card portfolio is helping the company grow despite a challenging economic environment.
"One of the underlying components that has built a portfolio of payment volume
that is more resilient [in bad economic times] has been the rapid emergence of our
debit business," Pollitt told investors Sept. 9 at the Lehman Brothers Inc. Global Finance Services Conference in New York.
Visa, which has been trying to expand its debit relationships with banks, announced
Sept. 16 a deal with Cleveland-based National City Corp. to process the bank's
debit and ATM transactions. National City agreed to use Visa's Interlink point-of-sale
and Plus ATM brands as its primary PINdebit networks. The bank had a similar deal
with Greenwood, Colo.-based transaction processor First Data Corp. National City
says it will have a "smaller relationship" with First Data.
Mark Ford, National City senior vice president and group product manager for
consumer and business lending, said in an interview with ATM&Debit News sister publication American Banker the bank "felt like Visa's entire package of processing services just fit our needs more effectively." He said the decision was not based on the financial terms of the agreement.
Visa announced its second deal Sept. 17, giving the brand another advantage
over MasterCard Worldwide in the debit race. The Royal Bank of Scotland Group
PLC will begin issuing Visa-branded debit cards in the United States and the United
Kingdom in the middle of 2009. RBS will continue to issue MasterCard debit cards
until then, the bank says in a statement. RBS also will continue to issue
MasterCard-branded credit cards, but Visa has the opportunity to capture that
deal as well, says an analyst.
"Visa will do what it can to make an attractive offer to get more Visa credit
[cards] issued with RBS," says Adil Moussa, an analyst for Boston-based Aite Group.
The debit agreement gives Visa an alliance with one of the largest debit-card
issuers in the U.S. and UK. Last year, RBS ranked as the fifth largest
debit-card issuer in the UK with transaction volume of $48.5 billion,
according to published reports.
Responding to the deal between Visa and RBS, MasterCard said in a statement
that "the highly competitive nature of our industry drives migrations
of our business from time to time. RBS and MasterCard enjoy a successful
partnership and will continue to work together."
Visa's focus on debit comes at a time when consumers are shying away from
using credit cards, especially for everyday purchases of groceries and gasoline.
Politt attributes Visa's resilience in a shaky economy to the fact that consumers
often use debit cards to pay for essentials.
Even in a bad economy they continue to buy those basics, making debit cards
somewhat recession-resistant. In 2000, spending for essential goods
accounted for 27% of all consumer payments, Visa says.
The card brand anticipates such nondiscretionary spending will account
for 44% of all payments by the end of the third quarter. "The opportunity in debit is significant, as consumers increasingly turn to ready
funds for everyday purchases." Stacey Pinkerd, head of global consumer debit
products for Visa, tells ATM&Debit News.
The trend is going to continue, Brent Watters, a senior analyst for Maynard,
Mass.-based Mercator Advisory Group Inc., tells ATM&Debit News.
"Consumers are not extending themselves with credit, and that's why you're
seeing a pretty nice increase in debit card transactions," Watters says. "Visa's debit
portfolio is helping them offset some of the losses in credit in terms of transactions."
Watters believes the economy will keep many consumers credit-shy for some
time, but some will find credit necessary. "In certain situations, people are going to
have to turn to credit in order to make it day-to-day," he says. "They are going to
have to put groceries on credit."
