Buying Canadian Imperial Bank of Commerce's merchant card services unit would make National Data Corp. the second-largest U.S. merchant processor, trailing only First Data Corp., and open new paths in Canada for the Atlanta company.
The Toronto bank would trade its merchant business for a 26.25% stake in National Data's processor subsidiary, now No. 4 in the U.S. market. The deal, announced this month, requires regulatory approval.
The National Data subsidiary would be renamed Global Payments Inc. and spun off early next year.
Paul R. Garcia, chief executive officer of National Data's e-commerce division, said the deal would boost Canadian Imperial in the U.S. payment processing market, the world's largest.
It would also give National Data a boost in Canadian and U.S. accounts and immediate name recognition in Canada, Mr. Garcia said. The bank, the biggest in Canada, has signed a 10-year marketing agreement with National Data.
"We will be branding this as a marketing alliance," Mr. Garcia said. "CIBC is more familiar to Canadian business."
National Data is mostly an information services company for the health-care industry. Its e-commerce division was created in 1996 in partnership with MasterCard International to offer payment services for merchants.
Mr. Garcia said the North American Free Trade Agreement has turned Canada into a hot market for U.S. businesses. Other payment processors have talked of expanding into Canada, he noted, and First Data has expanded its presence there, signing processing deals recently with Laurentian Bank and Canada Home Trust.
Global Payment's connection with CIBC could help it move ahead of other U.S. processors in Canada, Mr. Garcia said. CIBC is a leader in the Canadian market for merchant-acquiring under the Visa brand, he said.
"There are cultural differences" between the United States and Canada in credit cards, he said, including the fact that Canada lacks duality, so banks must choose either MasterCard or Visa.
Canadian Imperial's merchant card services business consists of 140,000 merchant sites that process 800 million transactions a year. National Data's business has 775,000 merchant sites and processed 1.6 billion transactions in 1999.
In the United States, Canadian Imperial processes debit transactions for the Gap, Home Depot, and Toys 'R' Us.
Some Canadian Imperial products will translate well to the U.S. market, said Jordan E. Cohen, the bank's vice president of merchant card services. He said the bank developed a specialty product for the oil and gas market that lets merchants reconcile their fuel inventories through the point of sale network. Canadian Imperial's counterparts at National Data said the product could be useful in the United States.
"They said, 'Hey, I like that one,' " Mr. Cohen said. " 'This can work here.' "
Though National Data and Canadian Imperial spoke of a marketing or acquisition deal nearly a year ago, the talks really took off once the Georgia company announced plans to spin off its processing business, giving Canadian Imperial the opportunity to take a large equity stake.
"Our vision was to be a focused monoline transaction processor," Mr. Cohen said. "It appeared it was a good philosophical fit."
Though the deal would give a Canadian bank a bigger stake in payment processing than many U.S. banks, Mr. Cohen said this cross-border aspect is not momentous. "The border is becoming less and less relevant to merchants," he said. "It needs to be less and less relevant to processors."