HOUSTON – When the 4,100 member financial institutions in the Pulse EFT Association, about 1,000 of which are credit unions, voted to approve the merger with Discover, they voted for grafting greater products and opportunities onto a long established and solid relationship, according to Stan Paur, CEO of Pulse. "What I think is most important for people to understand is that here nothing really has changed," Paur said. "Pulse will continue to offer the same strong position in the debit and ATM arenas that we always have," he added. Some things will have to change however. Less than a week after Pulse member financial institutions approved the merger, MasterCard announced that it was going to have to review some of its relationships with the long standing debit brand. "In its ongoing efforts to ensure the continued integrity of the MasterCardr brand and network for the benefit of its customer financial institutions, MasterCard International is reviewing the merger of Pulse EFT Association with Discover Financial Services as it relates to MasterCard's applicable franchise policies and brand rules," the number two card brand said. "Specifically, MasterCard will determine whether the new "Discover/Pulse" organization may continue as a principal debit licensee and as a sponsor of financial institutions into Debit MasterCardr, Maestror, and Cirrusr programs. MasterCard will also examine whether the new entity's network logo may continue to reside on the Debit MasterCardr Card." No one from MasterCard was available to elaborate before press time. Another thing that will change is that some of the 1,000 credit unions that are Pulse members stand to make a good deal of money from the deal. According to Paur, every financial institution member of Pulse will get at least $5,000 as a result of the merger, but some who had high transaction rates in the six months prior to the merger will get substantially more, although Paur would not say just how much. Calls to credit union Pulse members around the country also failed to find any hard details when it came to money. "We frankly haven't heard anything yet," said one vice president for a billion dollar plus Texas credit union that had been a Pulse member for 20 years. "But if we did know, we are not sure we would release that information." The $2.2 billion Randolph Brooks Credit Union said that it had been a Pulse member for years but that it too would not reveal how much money it garnered from the merger. But Paur pointed out that the money would be just a short-term benefit from the merger and that there would be many new products and services coming that credit unions could access, many in the first or second quarter of 2004. Even though Pulse is retaining its identity through the merger, Paur explained there would still have to be some of the usual merger details to work out, and the two organizations have already begun working on new products and services Discover can offer Pulse members. Paur steadfastly declined to identify what those products might be, but some form of signature debit and credit card are almost sure to be part of the mix. "What Discover did in the Pulse merger was essentially to buy a railroad," said Theadore Iacobuzio, vice president for the TowerGroup, a leading research firm which focuses on global financial services and is based in Needham, Massachusetts. "They purchased the track, the cars, everything they need to go from having no real debit network or relationships with financial institutions to having them," he explained. "American Express should have done with Pulse what Discover did with Pulse," he said. Iacobuzio said that credit cards, because they carry larger profit margin, would get most of the attention but that the real gem of the Pulse/Discover merger would come on the debit side. "Debit has a smaller profit margin but it's definitely growing," Iacobuzio said. "But credit is a more mature industry and about flat, and has been for some time. Debit is the way to grow," he said. Iacobuzio said the addition of a Discover debit card will bring banks and credit unions yet another option for their credit and debit needs, and having one more option means one more way to create a winning card strategy, he explained. Iacobuzio noted that the rise of Discover could be the most significant card story of 2005 because Discover will bring something truly unique to the card industry, a privately branded card with an acceptance network which will also have access to deposit accounts and be able to offer debit cards. The possibilities are really very promising, he said. -

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