Payments processing giant First Data Corp. agreed last week to do what it said for seven months it wouldn't do-sell off its majority stake in the NYCE electronics funds transfer network-in order to facilitate its merger with Concord EFS, the owner of the Star Systems EFT network.
The agreement came just hours before First Data was due to square off in federal court with the U.S. Justice Department, which charged that the marriage of the NYCE and Star networks would violate federal antitrust laws by giving First Data power to control pricing in the market for PIN-based debit transactions.
"We are pleased to move forward with the completion of this transaction," said Charles Fote, chairman and CEO of First Data, after the agreement to divest NYCE was announced.
Under the terms of the agreement with Justice, First Data will sell its 64% interest in NYCE, which it acquired in 2001 for $350 million, over the next eight months. NYCE, which is based in Montvale, N.J., provides EFT services for more than 3,500 financial institutions, including some 1,400 credit unions. The remaining 36% of NYCE is owned by four banking giants: HSBC, Citibank, FleetBoston Financial, and JP Morgan Chase.
Concord EFS, which is based in Memphis, Tenn., is the largest regional EFT network in the country and provides EFT services to more than 6,000 financial institutions, including 2,500 credit unions.
Justice lawyers claimed that the combination of the two entities; Concord, which processes 56% of all PIN-based debit transactions, and First Data, which processes 10%, would substantially reduce competition among PIN-based networks for retail transactions and make pricing for PIN-based transactions less competitive. PIN-based transactions, as opposed to those that require signatures, are becoming more popular among both merchants and consumers, because they are cheaper to process, easier to complete, and also allow the consumer to obtain cash, whereas, signature-based transactions do not.
Dominating The Market
First Data already dominates the payments market in several ways. It owns Western Union, the largest provider of money transfers in the world. It also owns Global Cash Access, the largest provider of electronic payments services to gambling operations. And it is the parent of eOne Global, an Internet payments service provider.
Justice said the acquisition of Concord and its Star unit would give First Data too much power over which financial institutions carry which credit and debit cards by discouraging banks and credit unions from joining new and smaller networks, and making it difficult for upstarts to break into the EFT market.
Fote insisted during a conference call with reporters and analysts the settlement was not prompted by pressure to please its financial institution customers.
"I don't want anyone to think our strategy is bank-centric, it's payment systems-centric," he said.
Justice Department officials said they were pleased that First Data changed its position and agreed to the divestiture, which they had been working for all along. "This settlement ensures that American businesses will pay competitive prices for PIN debit transactions and that consumers will benefit from that competition," said R. Hewitt Pate, the Justice Department's antitrust chief, in announcing last week's divestiture deal.
While First Data said last week it has no buyer for its NYCE stake, several companies were rumored to be interested, including MasterCard International, Visa USA, Fiserv, which is building its ACCEL/Exchange network, and Total Systems.
The sale of NYCE required First Data to restructure its merger agreement with Concord, lowering the value of the all-stock deal from about $7.1 billion to $6.9 billion.
