First Data Corp., parent of the world's largest credit card processor, said it will acquire a part of Envoy Corp. in a $156 million deal that will raise First Data's profile in the merchant-processing end of the business.

First Data, based in Hackensack, N.J., agreed to buy the Envoy division that handles merchant and point of sale transaction services. In addition to the $156 million in stock, First Data could pay an additional $21 million in stock if the unit meets certain performance objectives.

The deal, which the companies hope to consummate early next year, is the latest example of consolidation in the electronic processing of consumer payments to retail merchants. Many major credit card banks have withdrawn from this area in recent years, and First Data says it is trying to help the industry keep control of merchant relationships.

Nabanco, Card Establishment Services, and National City Processing Co. -- only the last is bank-owned -- are usually cited as the leaders in merchant processing.

First Data claims to be bigger than any of those, processing more than 1.3 billion transactions annually for 1.3 million merchants.

However, First Data has stayed out of the merchant processing spotlight, letting its bank clients "own" the merchant relationships.

The purchase of the Envoy unit "will enhance [FDC's] ability to maintain this leadership in servicing its bank clients who operate in the merchant-acquiring business," a First Data statement said.

The Envoy merchant unit will continue to operate from its Nashville facilities with existing staff and systems.

The top 10 merchant processors already control 69% of the credit volume in the United States, according to The Nilson Report, and that percentage is expected to rise.

First Data said it will increase its consolidated revenue - $1.5 billion in 1993 - by an estimated 12% with the Envoy addition.

The sale to First Data will leave Nashville-based Envoy pursuing two main business lines: health care and electronic benefits transfer.

At mid afternoon Wednesday, Envoy's stock price was up $3.50 to $20.50 a share. First Data was up 37.5 cents to $45.125 per share. (The announcement was made after the markets closed Tuesday.)

Roger Peirce, the former Visa International executive responsible for First Data's merchant processing activity, said the Envoy acquisition "enhances our presence in a rapid growth sector of our business."

"Envoy's customer focus and strength, particularly in the restaurant and lodging industries, will be extremely valuable for our banking clients," said Mr. Peirce, president of First Data's Electronic Funds Services unit in San Mateo, Calif.

Walter Hoff, the First Data executive vice president to whom Mr. Peirce reports, said in an interview last week that the funds services unit is single-mindedly focused on "how to help our banks succeed."

In a prepared statement Tuesday, Mr. Hoff called Envoy "another engine for growth in our core businesses which serve the financial sector."

The Envoy deal came as no surprise to market observers. Richard K. Weingarten, a Montgomery Securities analyst, noted in a March report on publicly traded payment processors,"Envoy, a well-regarded front end processor, is in a somewhat precarious position, as it has limited control of its own destiny."

He explained that as the company's clients -- mostly banks and independent sales organizations that market to retailers -- were acquired during the merchant industry consolidation, Envoy's services became replaceable by another processor.

While First Data's acquisition of Envoy seems part of the trend, the scale of First Data's business gives it the pricing flexibility to keep the clients it really wants.

Beyond the Envoy acquisition, First Data's Mr. Peirce sees tremendous growth ahead for the merchant processing business in general.

Mr. Peirce estimated that only 5% of the 200 billion point of sale transactions annually in the United States are on credit and debit cards.

Fueling the growth will be a push by MasterCard International and Visa U.S.A. to broaden. card acceptance and bring some 700,000 "paper" merchants into electronic transaction networks.

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