Visa, MasterCard differ in money-market approach

To many people the two major bank credit cards seem like Tweedle Dum and Tweedle Dee -- almost impossible to tell apart and often duplicating each other.

But when it comes to entering a new venture like money market mutual funds, the cards become more like the Cheshire Cat and the Mad Hatter.

For both cards, Visa and MasterCard, a primary purpose for setting up the money fund programs is the same: to give their member banks a product to compete with the booming money market funds and keep some of their depositors' cash from flowing out the door to the funds.

''The MasterCard Money Manager Account will be an excellent way for banks to compete with the cash management services offered by brokerage and investment firms,'' Russell E. Hogg, president and chief executive officer of MasterCard said last month as the program was cleared by the Securities and Exchange Commission.

In both cases, banks in the program will take bankcustomers' deposits and send them to their mutual fund company partners. For Visa, the partner is Alliance Capital Management, a subsidiary of the investment firm Donaldson, Lufkin & Jenrette Securities Corp. MasterCard's partner is the Fidelity Management Group in Boston.

But that is just about where the similarity ends. With deposits from the MasterCard program, Fidelity will buy certificates of deposit (CDs) from banks selected by Fidelity and meeting Fidelity's criteria for liquidity and safety.

With the Visa program, on the other hand, CD investments will be made primarily on the basis of how many of the fund's shares have been purchased by each bank's customers. If customers at a particular bank invest heavily in the Visa money fund, for instance, Alliance will purchase more of that bank's CDs.

So far, only the MasterCard-Fidelity program has been cleared by the SEC. That clearance permitted the companies to start a market testing program covering a cross-section of banking institutions across the United States. By the end of this month, the service is expected to be available to all of MasterCard's 12,500 member institutions.

At Visa, meanwhile, the wait for SEC clearance continues. Part of the reason for the delay is that the Visa fund is not designed to give prime consideration to the safety and earnings on customers' deposits, asserts Norman G. Fosback, president of the Institute for Econometric Research, a Fort Lauderdale, Fla., mutual fund research firm. Its publications include Money Fund Safety Ratings. In a recent edition of that newsletter, the Visa-Alliance-bank relationship was described as ''incestuous.''

This relationship, Mr. Fosback said in a telephone interview, violates one of the chief tenets of the securities business.

''A fundamental principle in the securities industry,'' he said, ''is that mutual funds represent, first and foremost, the interests of their shareholders, and not the banks with whom they have relationships.'' By agreeing to base even part of the investment decision on any criteria other than safety and return, the Visa-Alliance program is not offering the most safety to its shareholders, he contends.

Not surprisingly, Charles T. Russell disagrees. Mr. Russell is president of Visa USA and he sees the money fund fulfilling a need not met by any other fund -- including MasterCard's fund.

By investing in the banks that invest more heavily in the fund, Mr. Russell says, the Visa-Alliance program keeps money in the community where it was earned and saved.

On the other hand, most of the deposits made with money market funds, he argues, are used to purchase certificates of the 50 largest banks, primarily located in five major ''money centers,'' including New York, Chicago, and San Francisco.

(Supporters of the money funds point out that these large banks make many investments and loans in non-money center areas and thus help support local economies across the country.)

To the argument that Alliance's CD investments won't be as secure, he answers that the fund will still follow strict guidelines in making its purchases. Even if a bank's customers purchase more Visa money fund shares than any other bank, it must still meet certain criteria for safety to sell its CDs to the fund.

The fact that the new funds have Visa's and MasterCard's names on them does not mean people will be able to charge money fund share purchases. The only kind of card that could be used for purchases would be the two firm's ''debit cards, '' which are used to make withdrawals from bank accounts.

But transactions can be made without the use of any card, Donald Hill, project manager for Fidelity's Money Manager Account said. A customer can simply walk into the bank and ask that the money be transferred out of a checking or savings account into the money fund. He can perform this exercise in the other direction too, moving money from the fund to the bank.