Dispute Between Discover/Pulse and MasterCard Involves Some Fundamental Card Questions

ARLINGTON, Va. – Although no papers have been filed yet, some card industry observers expect that a small dispute between MasterCard and Discover/Pulse may end up heading into the courts. The PULSE EFT Association, which has a long-standing relationship with MasterCard, merged with Discover Financial Services on January 12. Discover is another nationwide card brand that is known to be looking for a way to break into the ATM/debit market, as well as hunting for financial institution partners which might be interested in issuing its credit card. Subsequently, MasterCard announced that it was reviewing its relationship with Pulse to consider whether the EFT association brand can continue to share card space with Mastercard’s logo and whether Pulse can continue to sponsor banks and credit unions into the associations. Stan Paur, CEO of Pulse, said that neither Pulse nor Discover was especially concerned about the MasterCard review and that it was not unusual for firms to periodically review their policies in regards to other brands. But he also acknowledged that MasterCard making a public statement about the review was unusual, though he rejected the notion that the announcement represented any sort of shot across the bow for the new card firm. Analysts have not generally been as optimistic about the possible outcome. Scott Reaser, a senior consultant with First Annapolis Consulting, headquartered in Annapolis, Maryland, explained that MasterCard may be concerned with any variety of different aspects of its relationship with Pulse which has suddenly become a relationship with Discover as well. For example, the court decision that said that Visa and MasterCard had to allow their financial institutions to issue other card brands did not say they had to allow other national card logos on their cards. This is not as big a problem when it comes to credit cards, of which most Americans carry more than one, but it becomes stickier when it comes to debit cards which most Americans have only one of. It might not be as big a deal, for example, for a credit union to issue both a Discover and MasterCard credit card and allow members to choose one or both or neither. But Paur and Pulse appear to believe that national card brands should share debit cards and MasterCard may share that opinion. The dispute appears to raise the question of who owns the debit card – the financial institution or card brand, and if the card brand owns the card can it demand that only its brand be on the card as a part of the card issuing agreement? For Paur, the answer is clear. The financial institution issues the card, pays to create and service the card and accepts liability for the card. It therefore owns the card and, in the wake of the previous court decision, should have the freedom to put whatever brands it wants to on the card. Further, he pointed out that Pulse and MasterCard have had a strong relationship in the past and nothing has changed fundamentally. MasterCard has, as of press time, remained silent on the matter but analysts point out that the number two card brand has a lot of time and money invested in its brand that it might be to its advantage to insist that credit unions should have to offer their members a choice between a MasterCard branded debit card and a Discover branded debit card. “Pulse is part of Discover now,” Reaser pointed out. “That is a reality that everyone is going to have to accept.” -