Debit card issuers' pain could be a gain for some payments processors.
First Data Corp., like other processors, is looking to capitalize on the Durbin amendment with its PIN debit network and the development of new "steering" services for merchants.
While the outcome of the regulation, which instructed the Federal Reserve Board to establish "reasonable and proportional" debit interchange rates and requires issuers to include multiple unaffiliated routing networks on their cards, remains uncertain, First Data executives said the new rules likely could improve revenue for the company's arm that works with financial institutions.
"If the non-exclusivity rules come through as we expect and we get our fair share of that new network business, that could obviously affect it positively," Jonathan Judge, the chief executive of the company, said during a conference call with analysts Wednesday.
The Atlanta company in the first quarter saw a dip in revenue from its segment that provides card issuing and processing services to financial institutions, with revenue falling 2% from a year earlier, to $338 million. It blamed customer losses and price competition.
Excluding the potential benefits from the Durbin amendment, Judge said First Data is not forecasting top-line revenue growth for its financial services segment this year.
"What we are doing is investing so that in 2012 and '13 we do start growing that top line again," Judge said.
In December, the Fed proposed capping the fees that banks earn when customers use debit cards to 12 cents per transaction, down from a current average of 44 cents. The interchange caps are set to take effect July 21.
The Fed is to have final rules for the network exclusivity provision by the same time, with an effective date to be determined. Legislators in the House and Senate have introduced bills that would delay the regulation's implementation for one or two years.
Companies that own debit networks that compete with Visa Inc. and MasterCard Inc., including First Data, which operates the Star PIN debit network, have said they expect card issuers to add their networks to comply with the requirement.
"There's an opportunity with non-exclusivity for the Star network to pick up share," Ray Winborne, First Data's chief financial officer, said during the call.
First Data also is developing products that could help merchants take advantage of the Durbin amendment, part of the Dodd-Frank Act. The amendment included measures to give retailers more control over how card transactions are routed and promote the use of certain cards.
Judge said First Data is developing "intelligent routing" services. A spokesman for First Data did not comment on specifics.
Revenue from its retail and alliance services segment, which works with merchants, rose 4%, to $765 million, in the first quarter on higher transaction growth and demand for its prepaid card program services and point of sale equipment.
First Data also expects mobile payment services to create opportunities in the future. In April, the company announced it was offering a Trusted Service Manager service in conjunction with SK C&C USA, a division of SK C&C Co. Ltd. in South Korea. The service allows operators of mobile payments systems using near-field communication to provision a consumer's payment credentials on mobile phones.
Overall, First Data's revenue rose 6% in the quarter, to $2.5 billion. The company narrowed its net loss to $184.5 million, from $208.4 million. First Data is a unit of the private-equity firm Kohlberg Kravis Roberts & Co.
