Thinking small may sound difficult for a company that compiled $2.1 billion in revenues last year, employs 21,000 people, and has managed in recent months to hire some of the most influential executives in the credit card industry.

Walter M. Hoff, executive vice president of aggressive and fast-growing First Data Corp., maintains, however, that thinking small is essential to responding quickly to changes in the marketplace.

During the past year, Hackensack, N.J.-based First Data has been organizing its businesses including collections, credit card processing, and electronic funds services - as separate divisions. The fourth and newest core division under Mr. Hoff the card products group, was launched in July.

First Data could have quite profitably kept its historically low profile as the largest credit card processing organization, but early this year, tongues started wagging after Roger Peirce, Visa International's powerful technology architect, joined the company

Other high-visibility recruits followed, led by Jerry D. Craft, who had headed credit cards and consumer credit at Wachovia Corp., and Scott Loftesness, who had worked with Mr. Peirce at Visa.

Mr. Hoff addressed those changes and his strategy at First Data.

Q.: What is it about this company that it can attract some of the biggest people in the industry?

HOFF: They see the changes in the industry, and this is a company that is well positioned to take advantage of those changes. If you talked to any of [the new hires], I think you would learn that they like the ethics and integrity of the company.

Q.: How should one view First Data Corp.'s recent announcements, particularly the launching of new business units and highprofile hirings?

HOFF: First Data reached a plateau in terms of its size, and it realized it could be a broader provider of services. The first thing we are doing is peppering the organization with people who really see it from a different perspective.

The second thing is recognizing that the marketplace is changing and becoming much more complicated.

The third part is time-to-market. The uniqueness in this business is going to be focused on time-to-market, and smaller units tend to move quicker.

Q.: As a portion of the parent company, how large is First Data's card products group [which is comprised] of four business units?

HOFF: In the U.S., it is around $559 million, and international would be an additional $150 million. First Data card products represents about 40% of the company. It is growing very fast.

Q.: Is the international side of the business growing rapidly?

HOFF: International, including Mexico, is really holding its own, but it is not growing as fast as the U.S.

Q.: What international markets has First Data penetrated?

HOFF: We are in the United Kingdom, Australia, and we just moved into Saudi Arabia - so we have a couple of holes to fill.

Q.: Describe the four new business units and why First Data created them.

HOFF: We have to look at this business and organize around where the major thrusts are going to be, so we broke down First Data into four major bodies of activity. The first one is directed at the point of sale, the merchantacquiring side, which is under Roger Peirce.

The second unit is under Jerry Craft, and it focuses on credit collections and how we can help banks grow the issuing side of their house.

The third group is the private-label business, which is split between indirect

private labels, those that our banks give us, and direct private labels, which we acquire when a retailer asks us to handle the processing on their inhouse private label.

The fourth business unit, core credit card processing, handles a number of major oil companies, including Unocal. We are in the process of converting other oil companies. That is going to be a very big business.

In avery short period, it will be a $100 million-a-year revenue stream, and there is no reason why it can't get up to $150 million or more.

Q.: What is driving the oil companies to First Data Corp.?

HOFF: Several years ago, they earned a penny or two a gallon, and the credit card by itself was an independent profit center. Now, oil companies are looking at their overall cost infrastructure, and they are not seeing a lot of growth in their private-label credit card programs, especially with the advent of cobranding.

They are also concerned about the technology and functionality that will be needed for marketing and relationship management, and we have that in our credit card program.

Q.: In what capacity does First Data get involved if one of the oil companies wants to develop a cobranded card product?

HOFF: Those discussions are really between the oil company and the cobranding parmer. We don't participate in the discussions, nor can we. They tell us what systems and functions they want.

We are also going to be very careful to isolate pockets of people so that the people who are working with one oil company won't work with another on cobranded decisions. We have to walk a very ethical line.

Q.: We have been talking mostly about your piece of First Data Corp. How much synergy is there between your business divisions and the other parts of the company?

HOFF: We are one of six processors of mutual funds in the U.S., and it just makes sense to us that, in one way or another, they could be linked to the credit card.

Also, 10% of all hospitals and 25% of all cable companies in the U.S. are billed by us.

We offer a marketing data base called Infosource, which is the national change-of-address list that we keep for the U.S. Postal Service. It has 92 million accounts, which include names and addresses.

Q.: Did the separation from American Express improve your relationship with the bank card associations?

HOFF: Absolutely. Visa is now linked with our collection business. Our relationship with MasterCard has always been good, and I think that it has even improved since our separation from American Express.

Q.: There has been talk from within at least a part of the bank card industry that First Data has to be watched closely because of the high-profile appointments that you have made and the power you are able to exert on both the card-issuing and merchantacquiring sides of a transaction. Could you be getting too big and strong for the banks' liking?

HOFF: You can't have anyone of our size or even Total System's size and not cause raised eyebrows.

We have made a decision that we are not going to compete with our clients. End of story.

That also means that we are not going to compete with the associations. I think the associations have accepted keeping a constant dialogue with us, and we will share our strategic plan with them. We'll share where our revenue growth is coming from.

Q.: You wouldn't create a brand?

HOFF: Why would I? Basically, we remunerate based on our stock price, and we are trading at a 25, 26, 27 multiple. If I decided to get into the credit card industry, I would not be getting those multiples.

I would have to double my earnings just to break even, and that's crazy. It is not good economics.

I think if someone is leery of us, then that is something we have to work on.

We are in business to help our clients, the banks. We are the largest processor of merchantacquiring transactions in the world, but nobody knows us, because we work for the banks. We watched our market share move from 20% to 17% as the banks exited that business.

We asked ourselves whether we wanted to go with the merchant business, and every time we looked at it, we said we are not going to compete with our clients.

We watched our merchant-acquiring business move 300 basis points, and during that same time, we were growing, which tells you something about the prospects of that business.

Editor's Note: On Aug. 16, First Data announced an agreement to acquire the merchant processing and point of sale business of Envoy Corp., Nashville, for up to $177 million in stock. Mr. Hoff that day said First Data's focus is on "how to help our banks succeed." He regarded Envoy as "another engine for growth in our core businesses which serve the financial sector."

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