ARLINGTON, Va. – In many different offices across the payment card industry, card executives scratched their heads trying to decipher their business environment in the wake of VISA and MasterCard's settlement with major retailers. It's been a bit like an earthquake, remarked one credit union card executive. The same basic relationships have been in place for so long that, when they changed all of the sudden, no one quite knows what to expect or what the changes mean, he said. "We are definitely waiting to see what will happen," said Mark Starr, CEO of the $200 million Florida Credit Union, based in Gainsville Florida. "It's not the end of the world, but it definitely shakes things up a bit for us." Starr stressed that he, like the rest of the industry, still awaited the final details of the settlement that had yet to be worked out. But based on what has already been announced from the settlement, he estimated that his credit union could see its monthly profit from its debit card activity cut in half by the settlement. Starr explained, using inexact numbers, that if Florida Credit Union, pre-settlement made $80,000 per month in gross profit from its debit transactions, and then paid roughly $30,000 of that to its processor, that left the current profits at about $50,000 per month. But if, after the settlement, the gross profits fell to roughly $54,000 and the credit union still had to pay $30,000 to its processor, the new profit levels would fall to $24,000 per month. "We probably have more penetration for our debit cards than the average credit union," Starr said, "but we are nowhere near the maximum. We are just going to have to decide how much of a marketing push we want to apply to build our transaction volume and penetration under the new income level," he said. What Will Merchants Do? Starr noted that the directions merchants would jump after the settlement "is the $64,000 question." Will retailers act on their freedom to stop taking the card association's debit cards? Or will they insist on accepting the cards only for transactions that use a personal identification number? Some cards, like those Starr's credit union issues, allow for either type of transaction and he noted that his previous income scenario "gets a lot worse if the retailers stop taking the cards." But an executive for a national retailers association said that he doubted there would be a widespread abandonment of the association's cards. "I think a lot will depend on each retailer's situation," he said, speaking off the record because, he said, his board had not yet met to officially react to the settlement. "Some retailers who are in a heavily discounted market, with very tight margins, might not feel free to take the cards, just as some now only take VISA and MasterCard and not AMEX," he said. But the majority of retailers would still take the cards, he predicted. He also pointed out that retailers' reactions to the settlement depend more on the final details of the negotiations, since there were many different categories and levels of interchange over which deals need to be struck. "What about online transactions," he asked, "what about travel related businesses, what about different professional services? All that has to be dealt with in a final way," he said. Could Be A Windfall for EFTs Although card analysts have predicted that electronic funds transfer networks will be among the winners in the post-settlement card world, executives with the networks are not necessarily looking for a windfall. Stan Paur, CEO of the Houston, Texas-based PULSE EFT Association, acknowledged that his association will likely gain some income from increased transactions after the settlement, particularly if some retailers turn away from the card associations' debit product. But he said that his network, which is owned by financial institutions, still has to bear in mind that its members will lose a third of their interchange income from their debit cards. PULSE has no plans to increase its interchange rates, the association said. The New York-based NYCE network, by contrast, has increased its interchange rates, but did so before the settlement was announced, according to James Judd, a vice president with the network. Judd reported that NYCE had felt the need to increase the rate in order to "balance" the desire between card issuing financial institutions for more income and retailers' need to keep costs down. "It's a high wire act, but we feel we have been walking it successfully so far," he said. Both Bob Rose, CEO of the CO-OP Network, based in Ontario, California, and Glen Lee, vice president of marketing for the Dallas-based TNB card services, anticipated that the overall effect of the settlement might be positive for all card types, because it would make it easier for consumers to choose cards over cash. "I think that consumers' interest in having a card access to their checking accounts will continue to drive this market," Lee said. TNB Card Services is a subsidiary of the credit union owned Town North Bank. He added that he doubted that retailers would stop taking the card associations' debit cards and added it was possible the settlement would foster further growth in debit if it settled the longstanding fight between PIN based transactions and signature transactions. Debit card transactions represent roughly 40% of TNB Card Services volume. The Fight Will Continue But one leading card executive pointed out that, while the fundamental gap between the cost of transactions which rely on signatures for validation and those that require PINs has closed somewhat, the overall fight is still on. Speaking off the record, the executive pointed out that increasingly the EFT networks are not owned by financial institutions but by other firms who have their profit-driven agendas and which will want a bigger slice of the payment pie. [email protected]