Alliance Data Systems Corp. has agreed to process debit and credit card transactions for all of 7-Eleven Inc.'s 5,500 stores in the United States.
The deal suggests to analysts that Alliance Data wants to get bigger in this field. The bulk of its revenue comes from running private-label card programs for retailers.
Analysts said they were surprised to see the Dallas company's relatively small processing arm land such a high-profile client, especially since Alliance Data has been downplaying the business, which had been shrinking.
However, David Munson, Alliance Data's vice president of client relations for network services, said in an interview Thursday that it never forsook the processing business, and that its sales force is working on expanding in the field.
The deal with 7-Eleven is "just a continued effort from our perspective to grow our customer base in that space," he said.
Alliance would not say how much of its revenue is earned from processing and merchant acquiring, but analysts estimated the figure at 10% or less.
"It's something that they had been de-emphasizing and the fact that they went and signed 7-Eleven, it doesn't look like it's that de-emphasized to me," said Robert J. Dodd, an analyst at Regions Financial Corp.'s Morgan Keegan & Co.
Alliance most likely wanted the deal to get its foot in the door for future deals with 7-Eleven, such as running loyalty programs or issuing private-label cards for the retailer, Mr. Dodd said.
7-Eleven said it could not discuss the deal by press time.
Denise McCauley, Alliance's senior vice president of network services, said in a press release Thursday that the company would support 7-Eleven on "innovations now and into the future."
Alliance began a loyalty program with 7-Eleven more than two years ago.
Shelley Whiddon, an Alliance spokeswoman, said the program is not running anymore.
Wayne Johnson, an analyst at Raymond James Financial Inc., said 7-Eleven's size makes it a good partner for Alliance and provides it a good opportunity for expanded relationships, such as being the retailer's processor in Canada.
Alliance could differentiate itself from other acquirers because it can offer other services, he said.
Mr. Dodd said any additional business brings "attractive incremental margins" for a company like Alliance that already has a platform for processing payments. "The cost structure to a large extent is already fixed, so any new volume you can increase over that platform is generally pretty nice margins."
However, he said he does not expect Alliance to court small merchants, because doing so would require a big expansion of its sales force and hence would raise costs.
