First Data Corp.’s decision to consolidate its merchant and card-issuer processing operations could help the payments company trim costs and better seize opportunities stemming from pending debit card regulation, analysts said Jan. 13.
The Atlanta-based company has marketed acquiring and processing services for merchants under its retail and alliance services division and card-issuing services under its financial services division.
First Data says it will combine the operations within its North American and international businesses, putting two executives in charge of leading the geographic segments.
Debit Driver
“We have considerable assets in this company that benefit issuers, acquirers, card networks [and] merchants,” Jon Judge, First Data CEO, said in a Jan. 13 interview. “It just makes sense that we have one sales force taking those to market and that our clients potentially have one throat to choke from a coverage standpoint.”
The Federal Reserve Board last month proposed capping the fees that debit card issuers could collect from merchant acquirers at 7 cents to 12 cents per transaction compared with an average of 44 cents currently. The proposal also includes provisions that would enable merchants to route transactions over different payment networks.
First Data owns Star, one of several PIN-debit networks that compete with Visa Inc.’s Interlink PIN-based point-of-sale debit network that are expected to gain new business because of the proposal.
“I think it’s going to drive even more processors and even card networks to streamline their operations, consolidate their processing assets, technology assets and really operate as lean and mean as possible,” Gwenn BÈzard, a research director with the Aite Group LLC research firm in Boston, said of the interchange proposals.
As part of the combination, First Data promoted Ed Labry to president of its North American operations, which accounts for more than 85% of its revenue. Labry since 2006 has been president of its retail and alliance services division.
Chief Marketing Officer John Elkins will run operations in Asia Pacific, Europe, the Middle East, Africa and Latin America on an interim basis while the company searches for a new executive.
Kevin Schultz, who has been in charge of its financial-services division since joining the company in 2009, will retire on Jan. 31.
First Data, which was taken private in a leveraged buyout by Kohlberg, Kravis, Roberts & Co. in 2007, has been working to streamline operations that have grown because of different acquisitions in recent years.
“With all the acquisitions they’ve done, with all the joint ventures they’ve done, they’ve got a portfolio of redundant delivery systems,” says Eric Grover, a principal with Intrepid Ventures, a Minden, Nev.-based payments consulting firm
In that regard, bringing domestic and international operations together makes sense. “What they’re doing is trying to rationalize operations and take out cost,” Grover says. “If you look at the number of accounts they have on file and you look at the number of payments they process, it’s more than any other processor on the planet.”
But because of their varied platforms, “they have not enjoyed all the benefits of their scale,” Grover says.
