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ARLINGTON, Va. – In the weeks after Wal-Mart agreed to again accept MasterCard’s debit card, credit union MasterCard issuers have been evaluating the impact the singular card dispute had on their interchange and card operations. Wal-Mart, the nation’s largest retailer, stopped accepting MasterCard’s debit card for transactions which cardholders validated with their signatures on February 1 and began accepting them again on June 22. The 14-week break represented the only time disputes over debit interchange that had led to a lawsuit between Wal-Mart and the card associations actually led to a retailer declining to accept one of the card associations’ cards. The legal settlement granted the retailers the right to decline VISA and MasterCard’s debit cards if they chose, and there were widespread predictions in the industry that a few retailers might do so. But, on the whole, that didn’t happen. In the wake of the legal agreement, VISA and MasterCard have generally reported the fallout from the legal agreement to be negligible. VISA in particular has asserted that virtually no retailers had stopped accepting its debit card, and MasterCard has suggested the same, with the exception of Wal-Mart’s decision to stop accepting MasterCard’s transactions that validated with a signature. “On the whole I think calling it a major impact might be a stretch, but it did have a significant impact,” said Bill Connors, CEO of the $400 million Purdue Employees FCU, headquartered in West Lafayette, Indiana. His credit union issues roughly 36,000 MasterCard debit cards, many to students attending Purdue University. The students were among the members that the Wal-Mart fight hurt the most, Connors reported. Connors explained that students didn’t always remember their personal identification numbers even as they were drawn to the Wal-Mart stores in the area. “What do students need?” Connors asked, “Low prices. What does Wal-Mart offer? Low prices.” Partly on account of the students, Connors estimated that Wal-Mart accounted for between 5-7% of Purdue’s debit interchange. He added that he and his staff were relieved the fight was over since the credit union had to tell members that they would have to use their PINs in Wal-Mart, an effort that included putting up lobby signs, notices on the Web site and notices in the credit union’s newsletter. An effort, he predicted, the credit union would have to do again to let its members know they could sign their receipts in Wal-Mart again. Connors added that he thought the dispute had reflected badly on MasterCard, even though it was not necessarily MasterCard’s fault, because it made the card seem like a second-class card when compared to other cards. “Our members should be able to use their cards with their signatures when they want to use them,” he added Anne Lang, vice president of Marketing for the $135 million Cabrillo Federal Credit Union, headquartered in San Diego, said that there had been a minimal impact on her credit union from the Wal-Mart drought. Cabrillo issues roughly 13,000 MasterCard debit cards but Lang reported that the credit union had received only 10 complaints from members about not being able to use them with their signatures at Wal-Mart. The credit union’s members may not have generally been big Wal-Mart shoppers, Lang explained. Like Purdue, Cabrillo had put notices on its Web site and in its newsletter to alert members as to the changing situation, she said. Issuing 115,000 MasterCard debit cards has made the $2.1 billion Randolph-Brooks Federal Credit Union, headquartered in the San Antonio area, one of MasterCard’s leading credit union debit issuers. Randy Smith, CEO of the credit union, said that his credit union is also very relieved to have the dispute settled particularly since the credit union’s medical plan provides a stored value MasterCard card and Wal-Mart refused to accept that for prescriptions and drug supplies. The credit union’s 630 employees switched providers to obtain their prescriptions, Smith reported. “From our perspective, it appears that most members switched to another payment mechanism, but some relayed that they had stopped shopping at Wal-Mart,” Smith said. Smith also questioned what the whole dispute had theoretically been about. “We fully understand Wal-Mart’s desire to lower costs, but we don’t understand why they continued to accept what appeared to be higher priced payment alternatives,” Smith said, and he expressed concern about the future and what MasterCard may have given up in the fight with Wal-Mart. Our concern is that MasterCard may have agreed to a price that is below the cost of providing that service,” Smith said. “The financial services industry, including credit unions, has spent billions of dollars designing and deploying payment systems that work well for consumers and merchants. We are entitled to a fair return on our investment and, just like Wal-Mart, we cannot afford to sell our products and services below cost.” Smith speculated that Wal-Mart might have believed the financial institutions could pass those costs easily onto their members or customers and this has not been the case. “I have heard some people speculate that Wal-Mart’s thinking on this is that the individual financial institution should charge their customers enough of a monthly service charge to cover cost,” Smith added. “For our credit union and many others that don’t charge monthly checking account fees, any reduction in interchange – whether from signature debit or PIN-based transactions, puts a squeeze on earnings. The more earnings are squeezed, the more consolidation will take place among credit unions,” he said. [email protected]

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