MasterCard Will Recruit Multiple Issuers for Delta Debit Card

In an apparent first in the debit card market, MasterCard Inc. has a struck a deal with Delta Air Lines Inc. to build a national network of issuers of Delta SkyMiles cobranded debit cards bearing the MasterCard logo. Atlanta-based SunTrust Banks Inc. currently is the sole issuer of Delta debit cards while American Express Co. issues SkyMiles credit cards.

“This is something we think is rather new and innovative, and something that capitalizes on Delta’s brand,” Rob Sheets, MasterCard senior vice president and group head of merchant relations, tells Digital Transactions News.

Atlanta-based Delta, which absorbed Northwest Airlines in 2008, is now the nation’s largest carrier by passenger count. Sheets says members of Delta’s SkyMiles frequent-flier program live in all 50 states. In contrast to a credit card that even a small bank could market nationally, offering a debit card nationwide is a much more difficult job because debit card distribution is closely associated with a bank’s branch network. Despite the emergence of a few mega banks in the past two decades, no one bank yet has a strong presence in every state. “We’re talking about building an alliance or coalition of issuers so any frequent flier … could get the Delta SkyMiles card regardless of which state they live,” says Sheets.

Tempo Payments Inc., a San Mateo, Calif.-based processor of so-called decoupled debit card payments that rely on the automated clearing house network for settlement, has marketed affinity debit cards for several years. But the scale and brand recognition of the MasterCard-Delta effort sets it apart, observers say. Market researcher Patricia Hewitt, director of the Debit Advisory Service at Mercator Advisory Group Inc., says she’s not aware of anything like the MasterCard-Delta plan. “It’s taking the idea of affinity and marrying the financial institutions to it,” she says. “I think it’s a very interesting proposition we’re looking at here. You know Delta has excellent brand value, so does MasterCard.”

MasterCard is just beginning the process of talking with potential issuers, Sheets says, and he wouldn’t identify any. The network, however, will likely be talking with banks with strong branch networks in Delta’s U.S. hubs, which, besides its Atlanta home, are in Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York City (JFK International), and Salt Lake City. “We’re not exactly sure how many financial institutions it will take,” Sheets says. “We have aggressive plans to start talking to financial institutions.”

Sheets would not say if MasterCard paid so-called support incentives to lure Delta. Both MasterCard and Visa Inc., which controls about three-quarters of the U.S. debit market, spend big bucks on rebates and volume incentives to encourage issuers to pump out cards with their respective brands and merchants to promote spending on their cards. For the quarter ended June 30, MasterCard spent $463 million on rebates and incentives and Visa spent $393 million, according to the networks’ most recent financial reports. Incentives were one, but not the only, reason that SunTrust, a long-time Visa stalwart, recently switched most of its card business to MasterCard (Digital Transactions News, Jan. 14).

A spokesperson for the SkyMiles program says by e-mail that many members asked for a debit card. Delta chose MasterCard because the network “has the experience, infrastructure, and deep commitment to help support our debit card growth plans,” he says. Delta wouldn’t say how big the AmEx SkyMiles program is.

Delta, with input from its issuers, will decide which perks the new debit cards will offer, and issuers will control pricing, according to Sheets. Cobranded debit cards typically offer fewer rewards than credit cards because interchange and annual fees are the main revenue sources, whereas credit cards also get lucrative interest income. SunTrust offers several iterations of its SkyMiles debit card. A basic offering has a $20 annual fee, gives one mile for every $2 in spending, and 7,500 bonus miles after the first signature-based purchase. A World MasterCard version for consumers has a $55 annual fee and gives one mile for every $1 in spending, as does a business card version. The World card gives 15,000 bonus miles for the first signature purchase while the business card gives 25,000. “The interesting thing in this will be how issuers differentiate themselves,” says Hewitt at Maynard, Mass.-based Mercator.

If the Delta plan works, MasterCard might take the idea to other sectors, probably starting with hotels and other travel-and-entertainment merchants, according to Sheets.