First Data Corp. bought the retail lockbox processor Remitco Management Corp. in an effort to shore up its electronic billing and payment services.
Terms of the purchase were not disclosed. Remitco complements First Data's other payments operations, especially those provided by Transpoint, its electronic bill presentment and payment venture with Microsoft Corp. and Citigroup Inc., said Jack Calabrese, senior vice president of First Data's Integrated Payments Services Inc. unit.
In marketing Transpoint the company had found that billers were more interested in streamlining their current paper-based billing operations than in moving directly to the electronic presentment and payment services offered by Transpoint.
"Our solutions were always futuristic," Mr. Calabrese said. "The retail lockbox piece helps companies in the near term as they move to a more electronic environment."
Though Atlanta-based First Data is mostly known for card processing, it operates businesses in multiple payments areas. It runs the Western Union money order service and Telecheck, a check authorization service for merchants. Its Denver-based Integrated Payments Systems division processes 700 million checks a year, much of them originating in the Western Union business.
Remitco, whose revenues and profits were not disclosed, is one of the few large processors left in the retail lockbox industry, providing a service that many banks once offered, said Lawrence Forman, a cash management analyst at Ernst & Young.
In November, FleetBoston Financial Corp. became the latest institution to abandon the low-margin, scale-driven business. Bank of America Corp. and Wachovia Corp. also left the business in recent years.
First Union Corp. is still in the busines, and Wells Fargo & Co. retains an interest through its partial ownership of Regulus Group, provider based in Bala Cynwyd, Pa.
Remitco, founded in 1996 as a processor for the U.S. Postal Service, handles 100 million bill payments and remittance coupons a year for large billers like Citigroup and AT&T.
The company's three-year processing deal with the Postal Service ended in mid-1999 and was not renewed. Sources said the Postal Service ended the contract because other lockbox processors and banks had expressed concern that it was giving Remitco preferential treatment.
Mr. Forman said Remitco is intent on expanding its business and was attracted to First Data, which produced $4 billion of revenues in the first nine months of 1999. First Data has "deep pockets" and direct access to many potential Remitco customers, Mr. Forman said, so the deal "seemed to make a lot of sense."
Joseph Proto, Remitco's president and chief executive officer, will continue to run the company's lockbox processing operations in Staten Island, N.Y., and Columbus, Ga. Of 65 billion checks written last year, he said, 16 billion were sent through the mail to pay bills. "Our aspiration is to get to one billion payments a year."
Though lockbox processing "is considered a low-margin business for financial institutions, First Data is an expert at building scale and profit out of products like this," Mr. Proto said.