Chase’s WaMu Deal Puts MasterCard on the Debit Defensive

MasterCard Inc., the distant No. 2 in the U.S. signature-based debit card market, scored a big win in 2005 over rival Visa Inc. when Washington Mutual Inc. said it would convert its Visa-branded debit portfolio of more than 10 million cards to MasterCard. But that gain is now in jeopardy following Washington Mutual's failure Thursday night?the biggest bank failure in U.S. history?and the sale of some of its assets to a Visa-oriented debit and credit card issuer, JPMorgan Chase & Co. The WaMu debit portfolio, one of the nation's five largest, suddenly coming up for grabs follows two big debit wins for Visa last week from Royal Bank of Scotland Group and Cleveland-based National City Corp. A spokesperson for Chase could not be reached for comment Friday morning on whether the bank had yet made any decisions about the WaMu portfolio's branding. Visa in July reported that its U.S. members had issued 299 million Visa-branded debit cards as of March 31. As of June 30, MasterCard's U.S. members had 117 million MasterCard-branded debit cards in issue. And Visa controls about 70% of signature-debit charge volume. MasterCard, however, has made it clear it wants to increase its debit market share and it isn't afraid to open its pocketbook in pursuing that goal. A WaMu filing shows MasterCard paid the bank $21 million in 2006 as part of the debit conversion, says Gwenn Bézard, who as research director at Boston-based Aite Group LLC closely follows the payment card networks' battles for issuer and merchant loyalty. “By winning WaMu it was really a coup for MasterCard,” Bézard tells Digital Transactions News. “If MasterCard keeps the business it really shows MasterCard can compete effectively. If they lose it, it kind of puts into question their ability to go after Visa to gain market share.” In a statement, MasterCard said the company “has a long-standing debit and credit relationship with JPMorgan Chase and our primary focus is to support our customer through this period of integration and beyond. The foundation of the relationship has been our delivery of strong economic value to the financial institution, as well as innovative and convenient payment options to its cardholders. We remain committed to ensuring that MasterCard provides the industry's most economically compelling and pioneering payment services and solutions for our customer financial institutions.” Chase and Washington Mutual each have about 12 million signature debit cards in issue along with smaller numbers of PIN-only debit cards. The majority of Chase's cards are Visa-branded. The addition of WaMu's portfolio would propel Chase past Wells Fargo & Co. into the No. 2 slot among debit issuers behind Bank of America Corp., which has about 30 million cards outstanding. BofA and Wells are big Visa debit issuers. Both Visa and MasterCard are on track to spend $1 billion or more in 2008 on incentives to issuers and merchants to issue cards or encourage charge volume on their respective networks (Digital Transactions News, Sept. 19).