First Data Supports Two-Tiered Debit System

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DENVER – Payments processing giant First Data Corp. plans to support the Federal Reserve’s proposed new debit interchange rules with a two-tiered pricing structure for debit-interchange rates on its Star PIN-debit network, the second major processor, including Visa, to support a two-tiered system.

The introduction of a two-tiered system is critical for credit unions and community banks, which are exempt from the Fed’s price-setting regulations but fear having the new price caps applied to them under the current single-tiered system.

The two-tiered system would mean different debit rates would apply for issuers above and below $10 billion in assets.

The final version of the proposed regulations, scheduled to be published April 21, “could look different” than the proposed rules, so it is too early to provide specifics on pricing or how new network-exclusivity rules will affect the industry, Ray Winborne, First Data’s chief financial officer, said during a Wednesday call to discussing the company’s fourth-quarter earnings.

“We believe the effects of the regulations will be neutral to positive for us,” Winborne said, adding that First Data plans to implement “the most competitive interchange that market conditions will allow.”

The company losses narrowed during the fourth quarter as it continued digging out from debt associated with its costly 2007 takeover by Kohlberg Kravis Roberts and is beginning to see the effects of an improving economy, said Jonathan Judge, the company’s new CEO.

Winborne told analysts he believes the new rules could “unlock” opportunities for First Data.

“The recent regulatory changes and alternative payment schemes, including mobile, could profoundly change the [payments] landscape,” Winborne said, suggesting that emerging mobile-payment technologies represent a significant opportunity for First Data to capture business in new channels.

“Mobile is a game-changer,” Winborne said, noting that First Data possibly may profit by developing technologies for existing customers that would extend loyalty programs to mobile-payment channels, including electronic coupons.


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