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This article appears in the June 25, 2009, edition of ISO&Agent Weekly.
Former First Data Corp. CEO Charles Fote is returning to the payments industry with a new company that intends to blend electronic payment and funds-transfer capabilities akin to his prior experience at First Data.
His yet-unnamed company will integrate electronic-payment and funds-transfer products at the point of sale, according to his spokesperson, Staci Busby.
Fote intends to work directly with merchants, but he also is open to partnering with or purchasing ISOs, she says.
As a buyer, Fote could find that a fair number of merchant portfolios fit his plans because many accounts in the portfolios are not performing well because of declining consumer spending and less access to bank lending for business funding, says Adil Moussa, an analyst with Boston-based consulting firm Aite Group LLC. Companies "seeking to acquire new portfolios will be in a great position," Moussa says.
Integrated Offerings
Fote intends to offer a "complete package" of payment products at the point of sale, including funds transfer, card processing, bill payment, money orders, global currency conversion and digitized payments, Busby says.
An integrated system that processes payments and handles funds transfers is a product First Data has opted not to pursue. After Fote left the Greenwood Village, Colo.-based company in 2005, the processor's board voted in September 2006 to spin off Western Union, its funds-transfer division.
In separating the companies, First Data intended to create a structure that would allow each to focus on its distinct businesses, markets and specialties, Ric Duques, First Data CEO and chairman at the time, stated in 2006. First Data focuses on electronic commerce and payment products, while Western Union focuses on funds transfers and bill payment.
Other payment-product providers, however, also are starting to move toward more-integrated offerings, notes Gwenn Bézard, research director at Aite Group. "The idea of adding additional offerings in addition to core services, that approach has been around a few years now," says Bézard. "We have seen a trend with acquirers trying to provide additional services on top of processing."
Part of the rationale for Columbus, Ga.-based Total System Services Inc.'s 2008 purchase of payment-technology company Infonox Inc. "was to provide more-integrated services," notes Bézard.
Sunnyvale, Calif.-based Infonox's software enables acquiring clients to accept multiple forms of payment, including checks, magnetic stripe cards, contactless cards and potentially new kinds of payments, while using a single process to clear them (ISO&Agent Weekly, 5/14).
To build his company, Fote intends to purchase different payments-industry companies and combine their offerings under his holding company.
Fote wants to buy companies that support funds transfers; credit, debit and prepaid card processing; bill payments; funds orders; global currency conversions; and digitized payments, Busby says.
Fote intends to formally announce his company upon acquiring the first payments company, she says. Investors in the holding company include private-equity firms, members of Fote's management team and Fote himself.
Convincing Merchants
The challenge for Fote will be con-vincing merchants that already offer funds-transfer or bill-payment services from multiple vendors to switch to an integrated product, Bézard says. "To displace existing offerings, [a product has] to be very compelling and add value," says Bézard.
In addition, some of the existing providers, such as Western Union, already have a fairly monopolistic hold on the industry, he notes. "Why would a merchant take a [funds-transfer] product through an integrated vendor? Why not go right to Western Union?" he asks.
Fote believes consumer interest in choosing how and in what currency to pay will convince merchants to switch to a merchant-service provider that offers an integrated product instead of the a la carte offerings many currently use.
For example, if a consumer is making a purchase in New York and wants to use euros as payment, "through global currency conversion, the merchant can take euros as payment, and the consumer won't have to be concerned" about the accuracy of foreign-exchange calculations, Busby says. The convenience the customer experiences in choosing among payment products increases the likelihood that consumer will return to the merchant in the future, she says.
Another challenge for Fote will be integrating success-fully the disparate companies he acquires, says Bézard.
A First Data representative declined to comment on Fote's plans.
