Visa is set to gain an even bigger share of the US debit card
market following JPMorgan Chase’s decision to migrate more than
half of a $59 billion debit portfolio from MasterCard. JPMorgan
Chase, a predominately Visa issuer, acquired rival bank Washington
Mutual (WaMu) in September last year and is now moving part of
WaMu’s MasterCard-branded debit portfolio over to Visa.

The decision is a blow for MasterCard as WaMu was its largest
single debit card issuer in the US. According to Credit Suisse
First Boston, in 2008, WaMu signature-based volume debit purchase
volume totalled around $35 billion, with PIN-based volume
representing another $25-$30 billion. Around $5 billion of
signature debit purchase volume will be retained as
MasterCard-branded. It is thought by industry analysts that the
strength of Visa’s debit platform compared to MasterCard’s swung
JPMorgan Chase’s decision.

MasterCard paid $21 million in 2005 to convert the WaMu debit
portfolio, with the bulk of that figure covering card conversion
costs to replace old cards with MasterCard-branded debit cards. At
the time of the conversion, WaMu had 9 million signature debit
cardholders and 1.5 million PIN debit cardholders.

The move will bolster Visa’s dominance in the US debit market – it
already has a 73 percent market share according to figures for
2008, based on purchase volume for all signature, PIN and prepaid
products, and the entire WaMu debit portfolio makes up around 5
percent of the US debit market. In its latest quarterly results,
Visa’s US debit payment volume surpassed credit payment volumes for
the first time to reach $206 billion.

JPMorgan Chase will continue to issue some MasterCard-branded debit
cards in the co-branded space. MasterCard has played down the loss
of the WaMu portfolio, saying that the decision was not expected to
materially affect revenue. “We recognise that given the highly
competitive nature of our industry and the challenging environment
facing our financial institution customers today, decisions such as
these can occur,” the company said in a statement. MasterCard
indicated that the WaMu debit portfolio generated less revenue and
profit following the JPMorgan acquisition of WaMu.

According to Moshe Orenbuch, an analyst at Credit Suisse First
Boston, the decision was not unexpected given that JPMorgan Chase
is predominantly a Visa debit card issuer. “This event will likely
have a small negative impact to MasterCard’s revenues and earnings;
MasterCard should be able to offset most of this through expense
leverage. Incremental revenues for Visa will likely by offset by
conversion costs in the near term,” Orenbuch told
CI.

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By GlobalData

Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods,
commented: “We believe the most significant impact would be to
MasterCard, which would lose about 3 percent of estimated earnings
per share in a worst-case scenario, which we believe is relatively
immaterial. Conversely, the positive impact to Visa (roughly 1
percent) would be relatively minimal as well, but a victory
nonetheless, in our opinion.”