ABA Banking Journal - January 2008 - (Page 32) CARD STRATEGIES Consulting, Boston, notes that as financial institution-owned associations, the two companies have behaved responsibly and grown along predictable paths. “There were challenges but issuers knew the model and had two brands to chose from, and there was an understanding of how policies and strategies would be made,” he says. “Now, there will be four brands,” he says, referring to Discover and American Express. In his view, each has—in terms of their broadly stated corporate objectives and operating models— comparable offerings. The differences will play out over time and will require issuers to re-evaluate options. Turgeon says, in the aftermath of the IPOs, bank card issuers should question how changes will be made to processing infrastructure and whether standard practices such as providing pricing breaks for exclusive use of a given card association’s infrastructure will remain. “Issuers should explore all brand options and really think about the segmentation of their portfolios,” says Turgeon. He thinks it’s naïve to assume that being public will leave the two brands as quasigovernmental entities that rely on traditional practices going forward. “Issuers should look at their portfolios and customer bases and see what markets they would like to get into, he says. Bank card issuers should also market themselves and take steps to better position issuer brand on payment cards. “It’s conceivable that plastic will become irrelevant, and that new devices and new providers could take over some serious marketshare” — Richard Crone, Crone Consulting Richard Crone, president Crone Consulting, San Carlos, Calif., is not alone in thinking that the quest for innovation was the second big driver of MasterCard’s IPO and Visa’s following act. “If you look at the money that those two will have raised, if all goes as planned, it will put the card industry on par with non-financial services industries in mobile payments,” Crone says. “It’s conceivable that plastic will become irrelevant, and that new devices and new providers could take over some serious market share,” he adds. “These deals are all about preparing for the next phase of the payments evolution.” Dove’s Paul Turgeon thinks technology is the big question mark going forward. Yet he also believes that emerging competitive dynamics will come from big-box retailers, given their rising importance in affecting customer behavior at the point of sale. Issuers might explore participating more directly with merchants to drive card use and help them build card loyalty. “It might make sense for bank card issuers to work with them on programs in some cases,” he explains. Interestingly, one irony will be that the very same credit cards that are largely perceived by consumers as interchangeable (with the exception of American Express, which retains a kind of massaffluent cachet) may become increasingly differentiated in terms of loyalty, pricing and other features. “The industry has been advancing its segmentation efforts, and it will have to think about its overall bank and card branding strategy with further segmentation in mind to stay competitive,” Turgeon explains. BJ www.ababj.com/subscribe.html What will the model look like? It’s certainly conceivable that MasterCard and Visa will put creative twists on their business models that have unforeseen— and not strictly positive—effects. Of course, bankers are already looking at the parallel universe of alternate payments and seeing experiments that feel threatening. And, new advancements such as the decoupled debit card have many banks eyeing their deposits and antsy about disintermediation possibilities anyway, notes Mills. The reality is, old alliances are subtly different now. “There won’t be any short-term differences in MasterCard and Visa but each will probably evolve along very different lines,” predicts Auriemma’s Marc Sacher. Certainly, all traditional vendors are concerned about staying relevant. 32 JANUARY 2008/ABA BANKING JOURNAL http://www.doveconsulting.com/ http://www.croneconsulting.com/ http://www.croneconsulting.com/ http://www.croneconsulting.com/ http://www.ababj.com/subscribe.html
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