MasterCard’s SunTrust Coup Includes Credit As Well As Debit Cards

MasterCard Inc. struck the latest blow in its ongoing fight with Visa Inc. for issuer loyalty with Thursday's announcement that SunTrust Banks Inc. would switch its entire 5-million-card debit portfolio from Visa to the MasterCard brand. While one analyst called it a minor win, SunTrust's conversion underscores the growing importance of debit to the card networks. And following some big wins by Visa in 2008 and 2009, SunTrust's business gives MasterCard at least temporary bragging rights in a contest that cost it more than $1 billion last year. SunTrust, a large regional bank headquartered in Atlanta, will begin the brand conversion later this year. Its agreement with MasterCard also will bring MasterCard-branded cards to SunTrust's 1-million-card credit portfolio that currently is 100% Visa. How many cards in that portfolio, which includes commercial cards, will become MasterCard-branded is unclear. “We currently intend to issue both MasterCard and Visa for consumer and commercial credit cards,” a SunTrust spokesperson tells Digital Transactions News by e-mail. MasterCard indicated that it was ready to rumble in the brand ring after releasing its third-quarter 2009 earnings in November. The company had spent $363 million that quarter, the same as a year earlier, on rebates and incentives?expenses for merchant promotions and payments to bank customers in return for issuing MasterCard cards and generating MasterCard transactions. “We expect our rebates and incentives to be significantly higher in the fourth quarter of 2009 compared to the prior year, due to new and renewed customer agreements,” MasterCard's third-quarter report says. MasterCard had spent just over $1 billion on rebates and incentives in 2009's first nine months, also equal to comparable year-earlier spending. Neither SunTrust nor MasterCard would give details about their agreement's terms, though SunTrust indicated that money played some role. Asked for reasons for the conversion, the SunTrust spokesperson cites “a combination of factors, including SunTrust's desire to have differentiated products in the highly competitive Southeast market; financial incentives; account management and marketing support; and tools and data for us to better manage our debit card portfolio.” A MasterCard spokesperson says by e-mail that SunTrust executives cited “our account-management team, marketing commitments and the tools and data that MasterCard brings to bear to help SunTrust better manage their programs.” SunTrust also indicated that MasterCard's Spending Pulse, an economic indicator service from the MasterCard Advisors consulting unit, was a “key differentiator,” and that MasterCard's “Priceless” brand advertising fits well with SunTrust's “Live Solid, Bank Solid” platform, the spokesperson says. In a brief report, Goldman Sachs & Co. analyst Julio C. Quinteros Jr. said, “the impact of this portfolio win is minor” for MasterCard. He estimates the SunTrust file will generate 1% of MasterCard's 2011 revenues and add 5% to global debit card purchase volumes. But he did note that MasterCard signaled it intends to be a debit player following the apparent loss of the Washington Mutual debit portfolio to Visa. JPMorgan Chase & Co., a Visa-oriented debit issuer, acquired WaMu's banking assets, including its 12-million-card debit file, in 2008 after the lender failed during the mortgage crisis. Chase hasn't formally said how it would brand the portfolio, but industry observers expect it to be switched to Visa. It was not even four years earlier that WaMu dropped Visa for MasterCard as its debit brand (Digital Transactions News, Jan. 7, 2005). “While the SunTrust debit portfolio win is minor, it is a welcome sign of MasterCard's continued focus on debit products?especially following last year's loss of the JPMorgan Chase legacy WaMu debit portfolio (to Visa),” the Goldman Sachs report says. “The portfolio churn over the last year continues to suggest an increasing focus by the networks on faster growing debit products, as domestic credit volumes will likely remain pressured through … 2011.” Also in 2008, Royal Bank of Scotland said it would convert its MasterCard debit portfolios in the United Kingdom and U.S. to Visa, and Visa-oriented Wells Fargo & Co. struck a deal to buy the weak Wachovia Corp., issuer of 10 million Visa debit cards, acing out MasterCard-oriented Citigroup Inc. (Digital Transactions News, Oct. 3, 2008). A Visa spokesperson could not be reached for comment about SunTrust late Thursday. Visa spent $1.23 billion on volume and support incentives in fiscal 2009 ended Sept. 30, up 6% from $1.16 billion in fiscal 2008, according to its latest earnings report.