By consolidating their two merchant-acquiring joint ventures, JPMorgan Chase & Co. and First Data Corp. are creating a payments juggernaut whose transaction volume will dwarf that of its nearest competitor.
JPMorgan Chase and First Data said Wednesday that they agreed to combine Chase Merchant Services with Paymentech LP to create a venture called Chase Paymentech Solutions LLC.
JPMorgan Chase, which owns 50% of Chase Merchant Services and 52.5% of Paymentech, will own 51% of Chase Paymentech. (JPMorgan Chase acquired its stake in Paymentech when it bought Bank One Corp. last year.)
Michael P. Duffy, Paymentech’s president and chief executive, has been named the president and CEO of Chase Paymentech.
“I think the integration of the two companies is a great opportunity for the marketplace, because we’re going to be able to deliver more products to a bigger constituency” Mr. Duffy said.
Thanassis Mazarakis, who had been the president of Chase Merchant Services, left in July and is now the chief operating officer of Southern Star Co. Inc., a New York holding company for shipping, milling, and other businesses.
Chase Merchant Services was the No. 1 merchant-acquirer last year, with $254.9 billion of transaction volume, according to the industry newsletter The Nilson Report. BA Merchant Services was No. 2, with $247.2 billion. Paymentech was No. 4, with $189.7 billion, so Chase Paymentech would be well out in front of the pack.
JPMorgan Chase said the new venture’s customer base will include more than 541,000 merchants with nearly 1 million locations in the United States and Canada. This year it is expected to process about 13.1 billion transactions worth more than $500 billion.
Chase Paymentech and First Data have also signed a five-year transaction processing agreement. Scott Betts, the Denver processor’s president of enterprise payments, said the venture will consolidate sales forces and administrative functions.
“How do you run two separate sales forces?” Mr. Betts said. “You just can’t leverage it as cleanly as you can by integrating the two merchant-acquiring houses.”
Mr. Betts said the integration would begin immediately, and should be complete by mid-2006.
The consolidation was anticipated. After the Bank One acquisition, industry watchers said it made little sense for JPMorgan Chase to maintain two similar companies, and in June the New York banking company hinted that it was planning a merger.
However, some analysts speculated that JPMorgan Chase might combine the merchant-acquiring businesses and either dissolve its partnerships or buy out the processor. This year the banking company moved its credit card processing business from First Data to Total System Services Inc.; Bank One had done the same last year.
Robert J. Dodd, an analyst for Regions Financial Corp.’s Morgan Keegan & Co. Inc., said the uncertainty had been a drag on First Data’s stock price. “There was some concern on the street that the two ventures would be dissolved or, for that matter, that First Data would be bought out.”
Mr. Betts said, “People have been speculating about the doom of our alliance relationships for a long time.” However, “as Mark Twain would say, the rumors of the death of our alliances are vastly overstated.”
