PNC Trims Its Merchant Processing Unit
By selling half its contracts to process merchant credit card receipts, a subsidiary of PNC Financial Corp. will cut costs in an area that has experienced slim profit margins, bankers at the unit said.
The unit, CFC Financial Services Inc., last week agreed to sell part of its merchant processing business to Nabanco, a subsidiary of First Financial Management Corp., Atlanta. CFC will shift the processing of merchant card receipts to Nabanco over the next year and reduce staff. Officials said it was too early to say how many of the 165 employees will be affected.
The price of the deal was not disclosed.
Nabanco plans to open a processing center in Louiseville, Ky., where CFC is located, to process the receipts. CFC officials say it and Nabanco may eventually work out an arrangement whereby Nabanco manages the unit's existing processing center and hires some of the staff.
Other Half Not for Sale
CFC said Pittsburg-based PNC is not seeking a buyer for the rest of the portfolio.
CFC is the fourth-largest servicer of merchant bank card transactions and one of the largest bank-owned firms remaining in the business. The deal, announced Wednesday, is the largest merchant processing acquisition by a nonbank in several months.
Poor management, low profits, stiff competition, and the need to raise capital have forced many banks to turn over their merchant servicing activities to outside firms recently.
Banking groups have been critical of this trend, warning that nonbank acquirers may begin to compete for merchant deposits by purchasing depository institutions.
But executives at the PNC unit stressed that the bank will keep deposit relationships with merchants, but turn over processing to Nabanco. They said the unit would retain a sales and marketing team that would continue to provide CFC's business to merchants.
"The business wasn't as profitable as we'd like it," said Michael L. Douglas, president and chief executive officer. "Our margins have been squeezed because the market has been intensely competitive. With the level of investment we were willing to make in business, it was difficult for us keep up with high-volume processors."
Mr. Douglas said profits were slim because CFC procured merchant services from other firms and brokered them to customers and agent banks. The markup on the services squeezed profits.
"That's what drove us to enter this agreement," said Mr. Douglas.
He said CFC looked at other merchant processing providers, but decided to go with Nabanco rather than a bank-owned firm such as Citicorp Card Acceptance Services, the third largest processor, because of the risk that a bank-owned firm might lure away merchant deposits.
"That's not going to happen in our situation," said Mr. Douglas.