First Data Corp.'s acquisition of a retail gift card specialist would round out the Denver company's suite of prepaid offerings and help it bring lucrative marketing services in-house, executives and observers said.
Interactive Communications Inc. of Atlanta, which First Data, a unit of Kohlberg Kravis Roberts & Co., agreed to buy last month, has partnerships with more than a dozen major retailers ranging from Starbucks Coffee Co. and Blockbuster Inc. to Apple Inc.'s iTunes and Amazon.com Inc.
InComm's cards, similar to those distributed by Safeway Inc.'s Blackhawk Network, are sold largely through prepaid card "malls," or displays set up at 150,000 merchant locations.
Mark Herrington, First Data's president of global prepaid services, said "there is virtually no overlap" in the type of prepaid services offered by his company and by InComm, so there is much room for First Data to pick up customers through the deal.
Last year InComm generated $300 million of revenue on $8 billion of retail sales transactions. Mr. Herrington called the prepaid "mall" category one in which First Data was eager to establish itself and where InComm was already a prominent player. The deal "puts us in a completely different position in the marketplace," he said.
First Data processes transactions on closed-loop gift cards, which can be used only at specific merchants, and open-loop ones, which can be used at any merchant that accepts cards on its Star network. The company also distributes payroll cards for about 1,000 employers.
Tim Sloane, the director of debit advisory services at the Waltham, Mass., research company Mercator Advisory Group, said that First Data processes many of the transactions made with cards distributed by InComm, so buying it would make sense. From First Data's point of view, "here I am watching one by one as my largest and most profitable customers go through InComm," he said. After "a couple of those, you say, 'I am in the wrong business here, and how come I can't offer that?' "
Mr. Herrington would not say specifically how combining the two companies would streamline operations for cost savings. "Certainly, we should be able to find some efficiencies," he said.
Several industry experts have called the architecture of prepaid card offerings cumbersome and expensive, because they require as many as five participants to store and reload the funds, market and service the cards, and process transactions. But most experts agree that the marketing and processing capabilities — which First Data and InComm offer — are the easiest and most logical ones to combine under one roof.
Mr. Herrington said First Data would welcome InComm's suite of electronic prepaid offerings, which include accounts that can be used to download music and games and pay bills.
"Historically, First Data was not a company known for new product development and innovation … but we intend for that to be different in the future," he said.
InComm's expertise in creating contactless technology for prepaid cards will also be "advantageous" to First Data, Mr. Herrington said.
The deal is expected to close this quarter. First Data has not said how much it would pay.
In January, First Data announced a deal to offer prepaid products for Cadooz AG, a Hamburg provider of paper and electronic gift certificates.
