NPC Wins Third-Party Client from First Data

NPC has picked up a new processing contract, snatching business away from First Data Corp.

The No. 2 merchant transaction processor has signed a seven-year contract with Financial Alliance Processing Services Inc. Financial Alliance, an independent service organization, was recently spun-off from Deluxe Corp., Milwaukee.

The former National Processing Co., based in Louisville, Ky., is diversifying its clients beyond large national accounts to smaller, "mom and pop" merchants.

Industry experts said NPC is expanding its customer base in response to losing part of Wal-Mart's transaction processing business to First Data at the end of last year.

Kurt Knipp, NPC's executive vice president of merchant card services, said the $61 million Financial Alliance contract was a significant loss for First Data, because the Deluxe spinoff represented "one of their largest ISO relationships."

Hackensack, N.J.-based First Data, the largest merchant transaction processor, had been the processor for Financial Alliance since 1992.

Financial Alliance, also based in Louisville, is the eighth-largest nonbank provider of merchant services, with 60,000 merchants. It processes $3 billion a year in bank card transactions, providing "back-end services" such as chargeback retrievals and new account entry.

"It represents a continuation of our strategy to further penetrate third-party processors, in addition to small merchants, through ISO relationships," said Mr. Knipp.

"We've moved downstream from national accounts," he continued. "We don't want to compete with our customers and the ISOs by signing up merchants."

First Data signs up merchants through its bank alliance program.

Under the current agreement, Financial will outsource core accounting, batch processing, and some settlement to NPC.

The Kentucky subsidiary of NPC's former parent, National City Corp., will be the sponsoring bank for Financial. The Cleveland-based bank spun off the processor last summer.

Old Kent Financial Corp. had previously filled the sponsorship role. The Grand Rapids, Mich.-based bank decided to end its relationship with Financial, which works with a mixture of high-volume single location and national merchants, after joining First Data's bank alliance program last year.

Processing for an independent service organization helped Old Kent "bulk up volume and get a better discount from FDC," said David Kerstein, an executive vice president. "An alliance with FDC made it no longer necessary to have a wholesale side."

"Both FDC and NPC are good players," said John J. Leehy 3d, president and chief executive officer, Financial Alliance Processing Services Inc. "The capability and the economies, the size of NPC coupled with what we do- serving small clients and small retailers" will allow NPC to "keep our costs competitive in that marketplace, and pass that benefit along to our merchants."

The deal is a coup for NPC, which lost three-quarters of its processing relationship with Wal-Mart to First Data last year. NPC said it had derived 4% of its annual income from the retailer.

"NPC has found themselves vulnerable in the tier one marketplace," said Paul Martaus, president, Martaus and Associates, Clearwater, Fla. "This will help them spread their base further."

Montgomery Securities principal Richard K. Weingarten said, "NPC concentrates on the big, national merchants, now they are trying for the small merchants" by processing for independents.

The small-merchant business, he said, is the most profitable niche.

Because of its relationship with Wal-Mart, NPC still has the infrastructure in place to handle a large volume of business, Mr. Weingarten added.

Late last year, NPC made a similar arrangement with PMT Services Inc., a Nashville-based independent service organization. In that deal, NPC took on back-end processing and card authorization for PMT's burgeoning portfolio of small merchant clients.

NPC reported a 29% increase in its fourth-quarter net income, to $10.53 million. According to First Call Corp., Boston, the processor met analysts' estimates of 21 cents a share and also met estimates of 68 cents a share for the full year.

The company also announced recently that it has formed an alliance with Netscape Communications Corp. to offer retail merchants on-line access to merchant processing applications including check and credit card authorization.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER