First Data Corp. has granted U.S. Processing Inc. rights to market its automated teller machine and debit card services to small and midsize banks.
First Data, the largest credit card processor, claims a 44% share of the debit card market, but it processes mainly for large issuers of off-line products licensed by MasterCard and Visa.
"We felt we needed to offer small and medium-size clients the same services that are available for the larger clients," said Steven Collins, vice president of new business development in First Data's electronic payments group.
"We want to be the provider to all financial institutions," he added. "This market could reach a significant size."
U.S. Processing will be a reseller of First Data's off-line debit processing system, which includes transaction authorization, settlement, automated back-office support, and customer service.
Omaha-based First Data is to get a fee for every automated teller machine, MasterMoney, and Visa check card transaction generated by U.S. Processing's client banks.
The co-marketing arrangement surprised some industry experts, who noted First Data has recently been more inclined to acquire smaller companies in its field.
"FDC is trying to broaden its reach," said Joel R. Friedman, managing partner at Andersen Consulting, San Francisco. "This is a natural move, and medium-size banks need assistance. They have less bargaining leverage in terms of price."
U.S. Processing, based in Brown Deer, Wis., is a relative newcomer on the independent processing stage. It was founded in 1995 by former Deluxe Data Systems executive Michael R. Shutters to focus on banks with $5 billion or less of assets.
"We are able to buy at a volume discount and resell at a competitive price to the market," Mr. Shutters said.
First Data is using U.S. Processing as "a distribution channel into the lower end of the market," he continued. "They have a good reputation at the high end, where they have been very successful. This gives them an entree into medium-size and small financial institutions."
A consultant said the alliance could spread economies of scale to smaller customers.
"There has been a lot of consolidation in the processing business, and small banks have problems finding a variety of people to go to," said Stephen P. White, chief executive officer of White Consultancy, Atlanta.
The arrangement "levels the playing field" for the small banks, he said, which will "get the same functionality as the big guys across the street. The small guys in aggregate are a nice business for someone."