Concord EFS Inc. continues its roll-up of the online debit network business with its deal to buy a small electronic funds transfer company, Credit Union 24.
The centerpiece of Concord's business is the Star network, the largest electronic transfer network in the country, which was put together through the acquisition of several large regional networks. Though Concord, which is based in Memphis, had taken a breather from network acquisitions - partly to spend time on systems integration, and partly because there are few small networks left to buy - it has stepped back into the fray with the credit union deal, announced Thursday.
"This is not a material financial transaction for us, but it is strategically important," said Ronald V. Congemi, the president of network services at Star.
The deal must be approved by the boards of both companies but is expected to close this quarter, Mr. Congemi said. He would not say how much his company would pay.
Credit Union 24, of Tallahassee, started 20 years ago as a shared automated teller machine network among four Florida credit unions, said James H. Park, the network's president and chief executive officer. He was hired at that time to expand the network throughout Florida.
It now has 410 members, most of them credit unions, as well as 7,200 ATMs and 55,000 point of sale merchant locations. It processes about 75 million transactions a year, which would make it the 15th-largest in the country, according to the 2003 Card Industry Directory, published by American Banker's parent company, Thomson Corp.
By comparison, Star has 6,200 financial institutions, 224,000 ATMs, and a million POS merchant locations, and it conducts 5.5 billion transactions per year.
Mr. Park said the network had received numerous purchase offers over the years. In May the board of directors conducted a formal bidding process. "They wanted to go through a process to evaluate the offers that were out there in a standard methodology," he said. It selected Star last month, he said.
The other bidders included Co-op Network, the largest dedicated credit union network in the United States. Star actually has more credit unions in its network than Co-op - currently 2,800 versus Co-op's 1,200.
But Star had other advantages for Credit Union 24, such as its vast coast-to-coast network, and services such as its ability to operate ATMs. Credit Union 24 was originally set up to offer credit union members more ATM access, and to a large extent surcharge-free access to those ATMs.
Like most of the EFT networks, Star runs a surcharge-free ATM network, called Star SF, which credit unions can join for a nominal fee, Mr. Congemi said. It also has a free shared deposit program, which he said is important to credit union members.
Mr. Park said Credit Union 24's board was not concerned about changing from a member-owned network to one owned by a publicly traded company.
"There's all kinds of philosophies," he said. "The main thing is to provide service to credit unions the best way we can and add value wherever we can in the EFT industry."
The deal would leave Co-op, of Ontario, Calif., as the last sizable credit union-owned EFT network. It has coverage in all 50 states, and in November it picked up its first credit union in Canada, according to Robert Rose, the network's CEO.
"We would have liked to develop a relationship with their folks," Mr. Rose said. "It would have been good for the credit unions to put two similar entities together, but I'm sure there were other considerations. From an acquisition standpoint, there aren't a lot of networks left, but there are still a number of large credit unions out there that we're still trying to sign up as members."
Alanna Kellogg, the president of the St. Louis consulting firm Kellogg Group, said that the Concord deal is "significant for the members of Credit Union 24," and for Star. "But does it change the network landscape? No."
Credit unions in the past banded together in significant numbers to compete better against larger banks, but "it would appear, based on this decision, that this is no longer necessary," Ms. Kellogg said. "Those competitive issues are outweighed by the value Star provides in some other way."
