Moneris Solutions Inc. has a foot in the door of the U.S. market but hopes to open it a little wider - and says its biggest rival here, First Data Corp., could provide the opening.
Formed in December 2000 by Bank of Montreal and Royal Bank of Canada, the Toronto venture has become the largest merchant processor in Canada, largely because its ownership structure permits it to process both Visa and MasterCard transactions.
Canada does not permit duality; banks must issue cards under either one brand or the other, and merchants there have historically had to forge separate processing relationships in order to accept both. But since Bank of Montreal issues cards and acquires merchants under the MasterCard brand and Royal Bank does likewise under Visa, Moneris can process both types of transactions.
In the United States, however, where duality is permitted, Moneris has seized on First Data's merchant/bank alliances - which many in the industry view as a key source of strength - as a potential weakness. Under these alliances, most of which are structured as 50-50 ventures, the Denver company processes the transactions, and its bank partner manages the acquiring relationship with the merchants.
Larry Wine, the president of Moneris Solutions U.S. Group, said there are some potential flaws in First Data's 10 or so alliances. They set up an element of rivalry between First Data and the banks, which want to compete against other banks, not against their own partners and vendors, he said.
"Our sense is that this specific issue is clearly creating space for us to serve a specific niche," Mr. Wine said. "We're trying to come through this as a pure-play provider, so that at the end of the day, we are not going to compete with financial institutions that are our clients."
There is a divergence of opinion on this point.
The structure of these deals "probably provides an opportunity" for Moneris "to pick off some relationships of banks that want some independence," said Christopher Penny, an analyst at Friedman, Billings, Ramsey Group Inc., who covers First Data. "It could happen that banks will become a little more frustrated with it."
But Marc Abbey, a partner at First Annapolis Consulting Inc. of Linthicum, Md., scoffed at the notion that these longtime partnerships are in any way a weak spot for First Data.
"I just don't buy that," he said. "Most [of the alliances] have been share winners. If anything, it looks like an advantage rather than a disadvantage. When it all balances out, all these businesses have done pretty well."
A spokesman for First Data said that it "has built a successful business model." As for Moneris' aspirations, "competition is good and healthy for the market," he said.
Moneris has been operating in the United States through Harris Bank, a Chicago subsidiary of Bank of Montreal. The venture's owners hope the small merchant processing portfolio of Royal Bank of Canada's RBC Centura Banks Inc. of Rocky Mount, N.C., may someday become part of Moneris' U.S. operations.
Meanwhile, the venture sees other opportunities in the United States. Mr. Wine says he would like to form "distribution partnerships that would provide us access to the small-business segment of the financial industry segment."
For example, Moneris signed a deal in April to offer credit and debit card payment processing services to the thousands of business customers of Pitney Bowes Inc., the Stamford, Conn., mail equipment company.
Mr. Wine said that Moneris is looking to partner with information technology, telecommunications, payroll, human resources, postage, business planning, and other businesses.
Any bank partnerships will look different from the First Data alliances, he said, though he would not specify how.
One area where Moneris hopes to differentiate itself is pricing, Mr. Wine said. Processors frequently charge fees for the wide variety of tasks they perform, which "makes it very convoluted and difficult for merchants to manage the cost," but Moneris gives one price.
Mr. Abbey of First Annapolis said that one big advantage for Moneris is the fact that many of its customers do business in both Canada and the United States. About 30% of the transaction volume in Canada involves merchants that have either a U.S. parent or U.S. operations.
Additionally, the U.S. merchant processing business is "highly fragmented, with very wide margins," so there are opportunities for newer players such as Moneris, he said.
