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Dinner Conversation: MasterCard and eFunds Partner for Debit Processing

By Patti Murphy

While dining out the other evening, my partner (a.k.a. husband), posed an interesting question. He wanted to know if I had a sense of Visa's share of the credit/debit card market, vis-…-vis MasterCard. When I responded with a ballpark estimate-that Visa transactions probably accounted for 65% of the bankcard market-he asked if there was any obvious explanation. I didn't have an immediate answer, although I think it's safe to say that lapses in strategic planning and product development certainly have contributed to the problem.

Consider, for example, debit cards. Visa banks practically own the off-line debit market, and Visa's Interlink network has allowed it to create inroads in online debit, a market dominated today by the two big ATM/POS networks-Star and NYCE. MasterCard, by comparison, places its share of the online debit card market at 1%.

About 20% of the market's signature (off-line) debit card transactions are initiated with Debit MasterCard (the company's answer to the Visa Check card), according to Rick Lyons, Senior Vice President for MasterCard Debit Products. And that's probably a generous estimate.

Lyons has been in the payments space since the early days of ATM networks. His resum‚ includes several high-level positions at ATM networks and banks, including Honor (an East Coast ATM/POS network that was acquired a few years back by Star) and Comerica Bank in Detroit, where he was the company's e-banking expert.

Just over a year ago, MasterCard managed to woo Lyons back to the East Coast. His mission: grow MasterCard's debit card business to a level that can seriously compete with Visa.

"We want to be the global payments leader," Lyons said in a telephone interview. "And debit has a whole lot to do with that." It sounds like a tall order. But then Lyons doesn't put any time limit on MasterCard achieving global leadership status in payments.

Today, MasterCard counts 250 financial institutions as debit card issuers. That number certainly needs to grow in the face of current trends in debit. "It's the fastest growing payment type," Lyons said. "That's why we've made so many significant changes in debit."

For example, Lyons noted, last summer MasterCard revised several policies and procedures that seemed to detract from growing debit, including the elimination of a policy that rendered Maestro as the debit network of last resort for MasterCard debit acquiring banks. In other words, MasterCard, until recently, actually encouraged its member/owner banks to use Star, NYCE or another network to clear debit card transactions they acquired-not its own Maestro switch.

Visa has always looked at the business this way-Visa first-even if it means going to court to enforce this view. Let's not forget the legal proceedings now underway, pitting Visa against First Data Corp., over First Data's efforts to keep 'on-us' items (transactions where First Data processes on behalf of the issuer and acquirer) off the Visa clearing and settlement network MasterCard's policy changes had a huge impact on Maestro. In 2002, Maestro logged just under 600,000 ATM transactions; in 2003 that tally nearly doubled to 1.139 million transactions, according to Lyons.

Now MasterCard wants to work similar magic with POS debit. The company announced in mid-December 2003 that it had entered into a "Debit Processing Alliance" with eFunds Corp., an electronic payments company and spin-off of Deluxe Corp., the check printer.

The alliance is the basis for what MasterCard calls its Complete Debit Processing brand. And while the arrangement with eFunds, on face value, seems little more than a fancy reseller's agreement, Lyons and his colleagues at MasterCard insist that it's much more.

eFunds, which traces its genesis to one of the first ATM networks, was once known as Deluxe Data. Deluxe Data developed software that today is used by scores of financial institutions for debit processing, either in-house or through ATM networks, although that number has diminished since 2002 when eFunds lost a critical contract with Star.

Star is owned by Concord EFS, which is in the process of being acquired by First Data, Visa's legal adversary. (Ah, what a tangled web.)

eFunds also supports check authorization and bank new account screening. It's considered the largest non-bank deployer of ATMs in the country. And, according to Lyons, "nearly 85% of online debit transactions [including Visa-branded debits] pass through eFunds' technology."

"Our partnership with eFunds is clear indication of the MasterCard commitment to better serve our debit customers," Ruth Ann Marshall, MasterCard President said in a prepared statement announcing the deal. "We have channeled our resources to create the most comprehensive and compelling branded debit program in the United States."

Lyons said the eFunds alliance patches a gaping hole in MasterCard's services offering. While MasterCard supports ATM debit technologies through its St. Louis-based operations center, it had no clear way of supporting POS debit. He describes the eFunds alliance as a "finishing touch" in the realignment of MasterCard's debit strategy.

But what's to stop a bank from going directly to eFunds for debit processing software and/or services? While Lyons conceded there are no real roadblocks to this, he's optimistic it won't happen, or at least not very much. "MasterCard is eFunds' preferred distribution channel," he emphasized, suggesting that eFunds might actually encourage prospect banks to work through MasterCard.

I get the sense that MasterCard may be banking on the fact that it can forge new and/or better relations with merchants now that it has eFunds in its camp. It's not a stretch: eFunds operates SCAN, the Shared Check Authorization Network.

SCAN isn't just any check authorization service. SCAN owes its genesis to a small group of national retailers that ran the check authorization network a bit like an exclusive club before selling it to Deluxe in the mid-1990s.

Lyons, when we spoke earlier this month, said MasterCard had in hand a letter of intent from a leading acquirer that was interested in using MasterCard to gateway to other debit networks. He said he's seeing even more interest from large, national merchants that want direct connections to MasterCard for debit card applications.

The benefits to retailers, he said, include lower costs, higher quality service and fewer opportunities for failure since merchants don't have to jump between networks for different steps in transactions.

So now the question is: Can MasterCard and eFunds, working together, make MasterCard the "global payments leader?" It looks like a long shot, but stranger things have happened in the payments space.

Patti Murphy is Contributing Editor of The Green Sheet and President of The Takoma Group. She can be reached at

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