Debit card issuers’ pain could be a gain for some payments processors.
First Data Corp., as are other processors, is looking to capitalize on the Durbin amendment with its Star PIN-debit network and the development of new “steering” services for merchants.
The outcome of the regulation, which instructed the Federal Reserve Board to establish “reasonable and proportional” debit interchange rates and requires issuers to include multiple unaffiliated routing networks on their cards, remains uncertain, but First Data executives contend the new rules likely could improve revenue for the company’s arm that works with financial institutions.
“If the nonexclusivity rules come through as we expect and we get our fair share of that new network business, that could obviously affect it positively,” Jonathan Judge, chief executive of the Atlanta-based company, said during a May 4 conference call with analysts to discuss first-quarter earnings.
The company during the quarter experienced a dip in revenue from its segment that provides card-issuing and processing services to financial institutions, with revenue falling 2% from a year earlier to $338 million. It blamed customer losses and price competition.
Excluding the potential benefits from the Durbin amendment, First Data is not forecasting top-line revenue growth for its financial-services segment this year, Judge said.
“What we are doing is investing so that in 2012 and ’13 we do start growing that top line again,” Judge said.
In December, the Fed proposed capping the fees that banks earn when customers use debit cards to 12 cents per transaction, down from a current average of 44 cents. The interchange caps are set to take effect on July 21.
The Fed is to have final rules for the network exclusivity provision by the same time, with an effective date to be determined. Legislators in the House and Senate have introduced bills that would delay the regulation’s implementation for one or two years.
Companies that own debit networks that compete with Visa Inc. and MasterCard Worldwide, including First Data, have said they expect card issuers to add their networks to comply with the requirement (
“There’s an opportunity with nonexclusivity for the Star network to pick up share,” Ray Winborne, First Data chief financial officer, said during the call.
First Data also is developing products that could help merchants take advantage of the Durbin amendment, part of the Dodd-Frank Act. The amendment included measures to give retailers more control over how card transactions are routed and the kinds of cards they can accept.
First Data is developing “intelligent routing” services, Judge said. A spokesperson for the processor declined to comment on specifics.
Revenue from its retail and alliance services segment, which works with merchants, rose 4%, to $765 million, during the quarter on higher transaction growth and demand for its prepaid card program services and point of sale equipment.
First Data also expects mobile-payment services to create opportunities. In April, the company announced it was offering a Trusted Service Manager service in conjunction with SK C&C USA, a division of SK C&C Co. Ltd. in South Korea. The service enables operators of mobile-payment systems using Near Field Communication technology to provision a consumer’s payment credentials on mobile phones.
Overall, First Data’s revenue rose 6% during the quarter to $2.5 billion. The company narrowed its net loss to $184.5 million from $208.4 million. First Data is a unit of the Kohlberg Kravis Roberts & Co. private-equity firm.
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