Independent BankersBank of Irving, Tex., said it has reached a deal to buy the assets of the Western States Bankcard Association.
The deal with Western, announced late Tuesday, is the second card association deal in less than two years for Independent. In December 2004 it bought Southeast Bankcard Association, which had about 75 community bank members.
The company says that expanding its credit and debit card operations will let it offer community banks lower rates.
Michael O'Rourke, Independent's president and chief executive, said that the acquisition would give his company "the opportunity to serve one out of 10 community banks nationwide in our card services division."
Independent offers credit, debit, and stored-value cards. "Better scale drives these prices down," said T. Patrick Gray, its chief operating officer.
The company serves about 1,200 community banks in 43 states, including about 700 that use its card processing services, and Mr. Gray said it is interested in other regional card association acquisitions. The Western States acquisition would increase its annual processing revenue by 28.6%, to $18 million, he said.
The sale would be the final chapter for a card association with an illustrious background. In 1966, Western States Bankcard created the original MasterCharge credit card, which has evolved into the credit card giant MasterCard. The Western States name would disappear under the Independent deal, and its customer relationships, facilities, and operations would be folded into Independent.
Western States, of Richmond, Calif., offers card services to about 85 West and Midwest banks with assets up to $2 billion Dave McNinch, its president and CEO, said he first approached Independent BankersBank more than two years ago, seeking to improve his company's card servicing capabilities. Western also wanted to protect itself from consolidation in the banking industry by selling some of its card receivables to the bankers' bank.
Community banks pool their card accounts with the association, which then outsources the processing to First Data Corp. But in several cases, larger banks outside the association have bought one of Western States' member banks, and the association has lost the member's cards accounts. This cuts into the pool of receivables and can threaten Western States' ability to get favorable processing rates.
"There goes all of your accounts that you were trying to save," Mr. McNinch said. "The very customers you wanted to protect and are now gone, or generating income for your competitors."
Mr. O'Rourke said that because its card processing deal with First Data is based on volume, it made sense for his company to buy Western States, which he said "has done a great job" but "wasn't in a growth mode, and we are in a growth mode."
Mr. Gray said Independent BankersBank could take over the smaller banks' card receivables without "competing against our customers." It also has a white-label card program for banks.
Neither company would give the price of the deal, which is expected to close in June. Mr. McNinch said his membership voted overwhelmingly in favor of it.
He said Western States' processing deal with First Data expires at the end of May. Independent BankersBank also uses First Data, so there would be no need to change processors. "It all fits together with perfect timing," Mr. McNinch said.
