Citing increasing competition and slower growth, the credit card processor Certegy Inc. said Thursday that it would sell off its merchant acquiring business.
The Alpharetta, Ga., company disclosed within its third-quarter earnings that its directors had approved a plan to sell the operation, which has lagged behind more lucrative businesses such as card issuing and check risk management.
Lee Kennedy, chairman and chief executive officer, said Certegy is in talks with a potential buyer for the merchant acquiring business.
"We think it's important to move as quickly as possible, get it out the door and focus on our core business," Mr. Kennedy said during a conference call with analysts.
The goal is not the highest price but a buyer that could help Certegy sell its other processing services, he said.
Mary Waggoner, a spokeswoman for the company, said it may sell the merchant services business this year.
The merchant operation generated $93.7 million in revenue last year, and $105 million is the prediction for this year.
Over all, Certegy's net third-quarter income was up 10.5% from a year earlier, to $29.1 million. Revenue rose 13.2%, to $262.7 million. The company said the merchant acquiring business contributed $1.3 million in profit.
Revenue from Certegy's biggest business, card issuing, rose 8.8%, to $126.7 million. Check risk management revenue jumped 23.3%, to $113 million.
Ms. Waggoner said the company aims to No. 1 or 2 wherever it competes, but is a small player in the large and competitive merchant acquiring market - which is "not an area we want to invest additional money in."
Mr. Kennedy said a small player in that business cannot compete with much larger ones, such as First Data Corp.
Also, he noted, banks have begun to return to the business.
On Monday, Bank of America Corp. bought the merchant acquirer National Processing Inc. for $1.4 billion. In August, Royal Bank of Scotland Group PLC said it would buy Lynk Systems Inc. of Atlanta, a privately owned merchant acquirer and payment transaction processor, for $525 million in cash.
Mr. Kennedy said he worries that Visa and MasterCard might price nonbanks out of the market through changes in their sponsorship regulations. Though neither card association has announced such a plan, Mr. Kennedy said he felt it would be best to quit the business in advance.
Robert J. Dodd, an analyst with Morgan Keegan & Co., agreed that banks getting back into the business could attempt to revise the sponsorship rules.
Paul Cohen, a spokesman for Visa, said he knew of no plan to change them. Banks are, however, taking more control of the "payment chain," he said. They believe they can do merchant acquiring just as cost-effectively as a third-party business like Certegy, Mr. Cohen said.
Ms. Waggoner said his company will not completely abandon the business. Though it will sell the merchant accounts it signed up itself, it will still process for merchants signed by its client community banks and credit unions, she said.
Those indirect relationships are one reason to get out of the acquiring business, Ms. Waggoner said. "In some instances we were offering the same products as our community bank customers, which made us a competitor with them."
Timothy Willi, an analyst for Barrington Research, said that "merchant processing is insanely competitive" but that it "makes all the sense in the world to hold on to the part of the business that's already tied to the banks."
Also on Thursday, Certegy announced that it had signed a memorandum of understanding to provide card and loan processing services to subsidiaries throughout Europe of Lafayette Services SA, a European provider of card, credit, and loyalty programs.
A day earlier, Certegy announced that it had been hired, under a multiyear agreement, to provide check warranty services for all Dillard's Inc. stores. Since 1994 it had provided such services to only some Dillard's stores.
With check fraud becoming more sophisticated, more merchants are likely to outsource check verification, Certegy executives said.
