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Clash of the Titans: MasterCard Vs. Visa

Florida and Florida State play out their rivalry on the football field. Ford and General Motors compete for buyers both online and in showrooms across the country. And MasterCard-Visa? Their B vs. B tussle is being played out on the cutting edge of high-tech.

MasterCard recently rolled out a new clearing system that it calls "one of the last key components" in a $160 million system upgrade to deliver its next-generation Global Payments Processing Platform.

That platform, in conjunction with Banknet, a new IP-based virtual private network (VPN), offers faster transaction capacity and growth potential, MasterCard says, allowing it to authorize transactions at average rates of more than 2.5 million per hour.

Visa, meanwhile, is reportedly spending more than $200 million to overhaul its computer systems, which already can handle up to 4,000 transactions per second. Visa calls it not so much e-commerce, but "u-commerce," where "traditional barriers to trade and commerce, from geographical boundaries to time differences, disappear."

Visa says it is aiming to connect buyers and sellers instantly and securely whether a purchase is made in person, over the phone, on a handheld device or on the Internet.

Purchase, N.Y.-based MasterCard's global platform was built on the International Standards Organization's (ISO) 8583 message set. About 97 percent of all card-issuing banks are currently using the new Integrated Product Message (IPM) format platform, which allows banks to process clearing transactions up to six times a day vs. a single batch method once a day.

"The most important trait of MasterCard and Visa's new clearing systems is their openness and flexibility," says Aaron McPherson, research manager for Retail Payments at IDC/Meridien.

"As the number of payment applications increases, with gift cards, payroll cards, virtual account numbers, smart cards, mobile payments, B2B payments and more, it will be very important to have a flexible clearing system that can handle a variety of different payment types," he told internetnews.com.

One of the newest high-tech battlefields for the two consortiums, both of which are member-owned companies (mostly financial services companies and banks), will let consumers with specially equipped credit cards just wave them at a reader to make a payment, rather than having to swipe the card and then sign for a purchase.

MasterCard is testing the system with some merchants in Orlando, Fla. The technology uses embedded computer chips and tiny radio devices. It's called MasterCard PayPass.

Visa has a smart card program, too. Last September, Visa International announced that it has developed a new global payment specification that removes the need to physically insert a smart card into a reader and even works with mobile phones.

The idea for both MasterCard and Visa is to make micro payments easier - things like movie tickets, meals at fast food restaurants, etc.

E-commerce, of course, is largely powered by credit cards, and in part is responsible for the growth of credit card usage. In 2001, credit and debit cards represented 26.4 percent of all consumer payments in the U.S., up from 18.5 percent in 1994, according to Visa's estimates.

And e-commerce and the development of the Internet have also contributed to the focus on technology at MasterCard and Visa. VisaNet, for instance, comprises 25 large mainframes and more than 230 midrange systems running more than 50 million lines of code - 2 million to 3 million lines of which are modified annually.

"Over the years, some of the most stringent requirements for performance and reliability have come from credit card companies," Avivah Litan, an analyst at Stamford, Conn.-based Gartner has been quoted as saying.

Both VisaNet and Banknet are being upgraded and adapted to support a wide range of electronic payments through the Internet and various mobile devices.

And the P2P space (look out, PayPal) is another area into which the credit card companies are expected to move.

Many of today's young IT professionals probably can't imagine the way it was back in the mid-70s, when store customers had to wait and wait while a sales clerk rang up the credit card company, read the account number and got an authorization code clearing the purchase. Transactions were cleared using paper receipts and card imprints. Imprinters were called knuckle-busters, because that's often what they did.

Nowadays, most transactions take place in seconds, or less. MasterCard's Banknet and Visa's VisaNet are among the world's largest communications networks, and much of the operations are built around IP.

Foster City, Calif.-based Visa U.S.A. already has an expanded payment-processing network called Direct Exchange that serves more than 14,000 U.S. banks and is built around an IP-based storage networking architecture. It was developed in partnership with Cisco Systems, Sun Microsystems, BEA and EMC.

MasterCard has just completed its five-year, $160 million upgrade and says its new clearing system "enhances all aspects" of its transaction processing operations - authorization, clearing, settlement and file transfer.

The new MasterCard system processes transactions continuously, allowing members to send clearing transactions at any time, and to receive clearing transactions at up to six different times every day to maximize efficiency.

The new system is comprised of more than one million lines of computer program code, and provides members with increased flexibility in choosing payment methods, including smart cards and e-commerce applications.

"Payments processing has always been largely considered a commodity," says Ted Iacobuzio, director, Consumer Credit for TowerGroup, a technology consulting firm, serving the financial services industry. "But the innovations within MasterCard's platform create a differentiated technology platform that serves as the foundation for both current and evolving payment services."

Indeed, and P2P can't be too far down the road.

"...the near-real time capabilities of MasterCard's system (clearing up to 6 times a day) will allow it to compete with person-to-person payments and wire transfers for same-day payments," said IDC's McPherson. "It will also make it easier for card issuers and acquirers to support new technologies, such as smart cards and mobile payments, that need special handling. For B2B payments, the new clearing systems will support delayed settlement, which is required by companies that want to delay payment until after they receive goods or until the invoice's due date arrives."

Visa, meanwhile, has been spending furiously, too, as technology races ahead. "Credit is boring. It's yesterday's news," Carl Pascarella, chief executive of Visa USA, was quoted as saying in a recent article about Visa in Forbes magazine. "Our goal now is to displace cash and checks. We're not a credit card company, we're an electronic-payment company."

Pascarella said his aim is to boost Visa's transaction volume tenfold by 2007.

And lest anyone think there is no competition between the companies, Ruth Ann Marshall president of MasterCard North America, fired off a letter to Forbes responding to the article, saying that "By the end of this year, MasterCard will surpass Visa in outstandings (the value of balances carried on credit cards), which is a far more important indicator of issuer profitability than debit With respect to the Visa system upgrades, MasterCard is well ahead Our systems enhancement strategy is complete and includes the industry's first virtual private network, a new data center and an advanced clearing system."

MasterCard International is the principal operating subsidiary of MasterCard Inc., a private, SEC-registered share company whose shares are owned by the roughly 25,000 principal members (financial companies) of MasterCard International.

Jointly owned by more than 21,000 member financial institutions around the globe, Visa International is a private, for-profit association.