Banc One Corp. and First Data Corp. took a series of steps last week to consolidate credit card processing operations after Banc One buys First USA Inc. later this spring.
First Data, already the leader in the card processing business, would get even bigger.
It said it had signed a long-term contract with First USA and Banc One to process all MasterCard, Visa, and private-label transactions for the merged entity, which would be the nation's third-largest bank card issuer.
Banc One and First USA's combined portfolio of 32 million card accounts, with an annual volume of $35 billion, would be added to First Data's 153 million accounts.
The purchase is expected to close in May or June.
Additionally, Banc One and First Data agreed to form a joint venture that will overnight become one of the largest in the private-label card business.
The companies also will leave in place another joint venture, known as a merchant bank alliance, which offers First Data's industry-leading MasterCard and Visa processing services to retailers.
And in a separate action, Banc One Corp. and First USA Inc. affirmed the independence of First USA Paymentech Inc., a rival to First Data and Banc One's POS Services Corp. in the merchant processing field.
Banc One said it plans to reduce by an unspecified amount its equity stake in Paymentech, the Dallas-based processing unit, which would be 57% at the time of the merger.
Experts said the moves amount to a big plus for Hackensack, N.J.-based First Data.
They also saw the decision to let Paymentech operate independently as good news for it in the short run, but a sign that Paymentech may be spun off in the future.
"This means big, big revenue for First Data," said Paul Martaus, president of Martaus and Associates, Clearwater, Fla. "Paymentech will have the additional flexibility to acquire businesses that may not want to do business with a Banc One-owned company."
"Banc One is inclined to divest themselves of Paymentech and let the alliances with First Data go forward," said another consultant, who refused to be quoted by name but who specializes in the payment processing industry. "If they can sell part of Paymentech to the public market, it could help pay for the acquisition of First USA's cardholder business."
First Data currently processes 17 million credit card accounts for First USA, while competing with Paymentech on the merchant side. Banc One has been processing its own credit card accounts in-house.
On the merchant side, Richard Robida, executive vice president, Speer & Associates, Atlanta, said Paymentech, currently the No. 3 processor with $36.5 billion in annual volume on 917 million transactions, will definitely be a survivor.
"From our perspective, it's a very profitable business," he said. "If Banc One had an option to keep equity and fold the merchants into Paymentech, it would have been best for the bank, but it is caught up in a contractual agreement with First Data and may not have had a choice."
First Data's merchant alliance agreements are typically 10-year contracts. Banc One is one of 12 such allies and has been a partner for about two years.
"We were unable to come together on a structure and price of putting their (Banc One POS Services Corp.) together with Paymentech," said Pamela H. Patsley, the latter unit's president and chief executive officer. But, she added, "This is very positive for Paymentech."
Commenting on the expanded relationship with First Data, David Strider, chairman of Banc One Payment Services, said, "We're very pleased with the joint venture between Banc One and First Data. It's a serious business commitment and we are very pleased with the way that company is performing."
To create the private-label venture, Banc One will combine its portfolio of seven million card accounts with five million from First Data's retail services division in Omaha.
As part of the deal, Banc One said it will hand over the operation of its Triumph processing system to First Data.
The Triumph software was used for in-house processing as well as services provided to American Express Co.-once First Data's parent company- and a group of credit unions.
Banc One is currently the No. 11 private-label company, with $1.7 billion in credit card receivables.
The unnamed joint venture will immediately rank with Sears, Roebuck and Co. and GE Capital Services as one of the top five private-label card companies.
Jack McDonnell, president of First Data Enterprises, Omaha, who participated in the negotiations with Banc One for the expanded agreements, predicted that competition between First Data and Paymentech would not be a problem.
"Banc One has stated that its intention is to allow First USA Paymentech to pursue greater independence," he said. "Banc One's merger with First USA is (not) going to have any bearing on how we do business in the future."
Stanley W. Anderson, president, Anderson and Associates, Arvada, Colo., said the new developments bode well for Paymentech.
"Paymentech sees this as a strong endorsement of who they are and they are very pleased that Banc One is willing to take a back seat," he said. "It gives Paymentech the flexibility to move in this very dynamic merchant- acquiring market, but it also puts behind them the enormous capital and reserves of Banc One."
Some industry observers expressed surprise that Banc One is getting further into bed with First Data.
One industry analyst who insisted on anonymity said, "On the surface, it looks like First Data has won this round, but I would be certain that Banc One extracted its pound of flesh."
The analyst added First Data would have had a huge hole in the Midwest if Banc One had left the merchant alliance.
Typical of many observers, Marc Abbey, principal at First Annapolis Consulting, Linthicum, Md., said he initially expected the merchant bank alliance with First Data "would have been wound down because of Banc One's stake in Paymentech."
