Legislation that could give the Federal Reserve Board authority to control debit card interchange rates would have little impact on First Data Corp., executives said Friday.
The Atlanta processor announced a $240 million loss for the quarter, but during a conference call to discuss the results, the first question from analysts concerned the interchange-fee amendment adopted by the Senate Thursday.
Because First Data does not earn revenue from interchange, Ed Labry, the company's president of retail and alliance services, said he expects the legislation, if enacted, to have a minimal impact.
"It's a bill that's not law yet, and it's subject to probably many changes along the way," he said. "We've always stated that interchange is not a component of our revenues, and right now, as we look at it," the amendment "could be neutral to slightly positive for First Data."
The amendment is part of the Financial Stability Act of 2010 currently being debated in the Senate.
Even if the bill were enacted in its present form and the Fed mandated lower interchange rates, there is no guarantee that First Data would reduce the discount rate it charges merchants to process debit transactions, said David J. Koning, a senior research analyst at Robert W. Baird & Co. in Milwaukee. The amendment does not address discount rates, which comprise interchange and processor fees.
"First Data might not reduce the total merchant discount fee it charges merchants," Koning said, "meaning First Data potentially could earn more revenue from a merchant."
The first-quarter results at First Data, a subsidiary of Kohlberg Kravis Roberts & Co., suggest consumer spending at merchants is improving.
The processor said the transaction volume in its retail and alliance services business grew 9% from the year earlier. It did not report actual transaction tallies.
Revenue per transaction was down in the quarter because of price compression and because transaction growth at national merchants and independent sales organizations outpaced growth at First Data's direct merchants, the company said.
It reported $2.4 billion of revenue, up 14.3%. The primary growth driver was the Bank of America Merchant Services LLC joint venture it created last year with the Charlotte banking company.
However, First Data reported a $240.1 million loss for the quarter, up 4%.
All but one of First Data's divisions had revenue growth. The company's retail and alliance services unit, which includes its direct and independent sales organization business, had $737.2 million in revenue, up 6.7%.
First Data said it added 14 referral partners and 21 independent sales organizations and landed three revenue-sharing agreements during the quarter. It works with more than 700 ISOs, according to Brian Goudie, First Data's senior vice president of partner sales.
First Data's international business revenue grew 15.1%, to $391.7 million.
The financial services division, which processes transactions for issuers, had a 7.1% revenue decline, to $346.1 million. First Data attributed this to the end of a services agreement with Washington Mutual Inc., which sold its banking operations to JPMorgan Chase & Co.