Pulse Pulsates with New Issuers As MoneyPass Adds POS Utility to Its ATM Network

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The once staid world of electronic funds transfer networks is bubbling with activity in early 2012 as networks, card issuers, and transaction processors grapple with new requirements arising from the Durbin Amendment in 2010’s Dodd-Frank financial-reform law. Thanks to Durbin, the MoneyPass surcharge-free ATM network is now going to the point of sale through a new arrangement that includes MasterCard Inc.’s Maestro network and Discover Financial Services’ Pulse network.

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Meanwhile, EFT networks with established POS programs continue to add customers in the wake of Federal Reserve rules implementing the Durbin Amendment, specifically Durbin’s ban on exclusive agreements between debit card issuers and networks. Houston-based Pulse reported on Wednesday that it added 129 direct financial-institution members in 2011. “We have seen demand from both large and small financial institutions to add the Pulse network to comply with the Federal Reserve’s prohibition on network-exclusivity arrangements,” Pulse president Dave Schneider said in a statement.

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Schneider was referring the law’s new ban on an a debit issuer offering, for example, only Visa Inc.’s brand for signature debit and the Visa-owned Interlink network for POS PIN debit. The Visa/Interlink combo has dominated U.S. debit in recent years, but come April 1, a debit card must now afford merchants the opportunity to route the transaction through at least one unaffiliated network. That’s created lots of opportunities for EFT networks such as First Data Corp.’s Star, Maestro, and now Pulse, all of which say they’re getting new business as a result of Durbin.

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The exclusivity ban also created what MoneyPass, a unit of Minneapolis-based U.S. Bancorp, calls an opportunity to leverage its increasingly popular service. Banks and credit unions in a surcharge-free network agree not to assess surcharge fees on customers of other network members who use their ATMs. That helps smaller institutions with only a few ATMs compete with the likes of Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., and other big banks with huge ATM fleets.

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MoneyPass has 1,427 financial-institution members that own a total of 22,000 ATMs and have 60 million customers. MoneyPass president Doug Miraglia wouldn’t give raw numbers but tells Digital Transactions News that total transaction volume from withdrawals, balance inquiries, and a new shared-deposit service grew 37% in 2011 over 2010’s volume. Miraglia attributes the big increase to a growing membership base, a heightened desire by cost-conscious consumers to avoid bank fees, and what he calls MoneyPass’s strong demographics and geographic reach. “It was almost a perfect storm of events for us,” he says.

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MoneyPass began considering how it could compete in the disrupted debit world shortly after Congress passed Dodd-Frank in 2010 and concluded it could offer a new routing option to card issuers with minimal work on their part, according to Miraglia. Although it didn’t reveal its POS plans publicly until late last month, MoneyPass actually began recruiting network members that use U.S. Bank’s Elan Financial Services debit-processing service, which serves as MoneyPass’s switch, back in September. Miraglia wouldn’t say how many financial institutions have enrolled, but says the response “exceeded our expectations.”

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Members of MoneyPass will choose whether they want to use Maestro or Pulse for purchase transactions by their cardholders. The transaction will go from the point of sale to Elan’s switch, which in turn will route the transaction to the appropriate network. MoneyPass has wholesale revenue arrangements with Maestro and Pulse and will collect a switch fee with each transaction.

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The new service spares issuers from having to reissue cards because they already carry the Visa or MasterCard logos, thereby signaling to cardholders that a merchant location accepts debit, Miraglia says. “The consumer doesn\'t care where it goes, as long as the transaction is completed and they get their goods or services,” he says.

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The service also enables MoneyPass, through Pulse and Maestro, to tap the nearly 2 million U.S. merchant locations that accept PIN debit cards without having to build a merchant base from scratch. Had MoneyPass chosen to do so, at first glance it might have seemed to have a leg up because U.S. Bank owns Elavon, one of the nation’s largest merchant acquirers. But any solution involving Elavon might have run afoul of Durbin-related provisions governing processing services from corporate affiliates, according to Miraglia. Plus, MoneyPass still would have needed to convince Elavon merchants to accept its service.

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“Rather than have to build an entirely new set of relationships with merchants [the new system is] less disruptive, easy to implement … and we think it provides the least disruption to the cardholder,” Miraglia says.

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Under the Fed’s Durbin rules, however, the merchant’s acquirer, not the card issuer, has the final say over which network a particular transaction is routed, depending on all the options a card affords. In the pre-Durbin world, issuers tended to partner with networks that gave them the highest interchange revenue, but now merchants and acquirers acting on their behalf will likely favor networks with lower rates. “To be honest with you, none of us in the industry know quite how that is going to go until we have some experience after April 1st,” says Miraglia.