A Visa Member Letter Touches off A Debit Card Debate

A brief reference to a rival debit card network in a recent document sent from Visa USA Inc. to its members has raised the hackles of the co-founder of that network and embroiled him in a debate with Visa USA chief executive Carl Pascarella over the risk associated with debit card transactions processed through the automated clearing house. This is a key issue as some retailers seek to control transaction costs by turning to alternatives to the national bank card networks and as those networks continue to pour resources into network capacity and security. Pascarella's four-page “Message from the CEO,” included in Visa's December 2003 Member Quarterly Report, is entitled “Bank-Owned Processing Vital to Ensuring Cardholder Security, Satisfaction and Preference,” and includes a jab at the ACH as well as “other EFT networks” for not offering risk-control programs such as zero liability. It then goes on to single out Debitman Card Inc., a Chico, Calif.-based company that uses the ACH to process debit cards secured by personal identification numbers for more than 20,000 merchant locations, as particularly risky. “With Debitman and other ACH programs,” Pascarella's letter says, “consumers are risking fraudulent access to their checking accounts” because of the account data they turn over to allow ACH processing. In a strongly worded Dec. 17 letter to Pascarella, Debitman co-founder and chief executive John K. Lannan calls the Visa chief's statements “gross inaccuracies,” adding that Debitman “includes provisions” for all the risk-management programs Pascarella cites, including zero liability. He adds that Pascarella's reference to Debitman specifically is “misleading.” “The ACH system accessed with a PIN-secured card has shown very little risk, and substantially less risk than those occurring with signature-based credit or check card systems,” he says in the letter, asking that “you cease dispensing such misinformation.” Pascarella has not replied to Lannan, who turned the letter over to Digital Transactions News. In response to inquiries from this newsletter, Visa issued a statement today referring to “significant investments” Visa members have made in “robust security, strong risk management, high capacity, (and) quick, convenient, secure payment capabilities, with global reach and universal acceptance.” The statement goes on to credit this investment with providing consumers “added protections against fraud through zero liability, merchants with guaranteed payment at the time of settlement, and financial institutions a reliable system connecting them to millions of merchants worldwide.” Finally, it adds: “Protecting the interests of all our stakeholders has been critical to Visa's success, and is an important distinction between us and our competitors. ACH has a long way to go before it displaces the ease and reach of card payments at the point of sale.” Lannan is far from ready to give up the debate. Responding to Visa's statement, he says, “While I appreciate and applaud Visa's success and admire the franchise they've built, I don't think that gives them the right to make false and misleading statements about the Debitman network.” By making his dispute with Visa public, Lannan says, he hopes to have discouraged Visa from making “such false claims in the future.”