First Data Corp.'s card services group has signed a letter of intent to provide processing support to Norwest Card Services' merchant credit card business.
The Norwest contract is the second this year of what First Data calls "merchant bank alliances," an outgrowth of its acquisition - completed last week - of Card Establishment Services Inc. In January, the Hackensack, N.J.-based company announced a similar deal with U.S. Bank of Oregon.
In its full-throttle thrust into the merchant arena, First Data said it is seeking to halt the movement of merchant acquirers away from banks and toward third-party specialists. In November, First Data launched the Merchant Bank Alliance program to offer its bank clients the opportunity to participate in the existing merchant business of Card Establishment Services, which was one of the top three providers of transaction services to retail merchants.
Under its merchant bank program, First Data will provide full merchant processing services for members of the alliance. Currently, its Omaha-based card services group performs Norwest's cardholder and merchant processing. The Des Moines card company and Card Establishment Services will each allocate merchant contracts to the alliance.
Roger Peirce, president of First Data's Electronic Funds Services unit, says the Norwest purchase solidifies the company's commitment to spread the wealth of the acquisition. He hopes to expand Norwest's relationship with First Data into a "strategic arrangement" maximizing their respective merchant investments.
For its part, Norwest believes the union with First Data will raise it to the upper tier of U.S. merchant acquirers.
"We hope to leverage the advanced technology that the CES system offers, decrease our operating costs through our combined scale and benefit from the additional efforts of the CES sales force," said Norwest Card Services president Brian O'Hare.
Norwest's card group serves 1.8 million MasterCard and Visa credit card customers, and provides bank card processing to 31,000 merchant locations.
The Card Establishment Services acquisition gives First Data, already considered the leading processor of accounts for credit card issuers, expanded responsibilities in serving merchants, a role in which the company has traditionally played second fiddle to its bank clients.
Mr. Peirce noted that the Merchant Bank Alliance had reversed an "exodus" of merchant business away from the banking industry.
Nevertheless, First Data remains under the watchful eye from some who believe its prominence may enable it to avoid accountability to card association standards and liability protections.
William Westervelt, a principal with First Annapolis Consulting in Maryland, seems to reject this reasoning. He described First Data's actions as "just an extension of any third party processor's processing capabilities."
