Friday , November 15, 2019

End of First Data Net Saga Sets up FDC To Get Payments from Visa

Visa USA and payment-processing giant First Data Corp. on Wednesday announced a settlement in a 4-year-old legal dispute that apparently puts an end to First Data Net, a high-profile initiative of First Data's former top official, and also appears to set up FDC to receive payments from Visa to help implement new products. In a vaguely worded joint press release, the companies say that under the settlement, “Visa will provide financial support to pursue mutual business opportunities and cost-cutting initiatives that are expected to drive new innovation, reliability, security, and new merchant acceptance.” The statement gives no details about the amount or scope of the support. Spokespersons for both FDC and Visa refuse to comment beyond the press release. Greenwood Village, Colo.-based First Data agreed to transition transactions from Visa members that are going over First Data Net?those the release called “existing private arrangements”?back onto Visa's VisaNet network. The statement gives no schedule for the transition. Under an ambitious plan announced about five years ago and mapped out by Charles T. Fote, FDC's chief executive at the time, First Data proposed to route through First Data Net a large number of Visa card transactions from client financial institutions that used FDC for both card-issuer and merchant-acquiring processing services. By diverting what in effect were “on-us” transactions of Visa members within its client base from VisaNet and onto First Data Net for authorization and settlement, First Data claimed users would save a few pennies in network fees on each transaction while taking advantage of First Data's huge scale. Visa, which estimated First Data Net might siphon off 15% of its volume and feared the so-called closed-loop arrangement would reduce its ability to ensure transaction security, in 2002 sued First Data in federal court in San Francisco, alleging First Data was improperly routing its members' transactions onto a private network in violation of its rules. First Data soon countersued on a variety of antitrust claims. A judge in the U.S. District Court for the Northern District of California dismissed Visa's claims in March, but First Data's countersuit was still pending. In the release, the companies say, “new leadership at both companies recognized a mutual interest in resolving legal differences. Visa CEO, John Philip Coghlan, and First Data CEO, [Henry C.] 'Ric' Duques, both acknowledged the increased value in putting this litigation behind them and restoring their companies' focus on working together to identify and build future business opportunities.” While details of the settlement remain vague, payment consultant Allen Weinberg, managing partner of Menlo Park, Calif.-based Glenbrook Partners LLC, says the payments by Visa to First Data may represent an acknowledgement by Visa of the expenses merchant acquirers incur to carry out programs devised by the bank card networks to get new types of cards into the market, enhance security, or make card payments more attractive to merchants and consumers. “This recognized that the [card] associations, through their normal product-development plans, impose costs on the acquirers,” says Weinberg. “All of these payments from Visa to FDC could be legitimately targeted to helping acquirers with the cost to support all the new Visa products that are coming out. An example could be Visa Contactless.” Visa Contactless is a radio-frequency identification (RFID) card that uses radio waves to transmit transaction data between the card and a payment terminal. Other examples of association programs that Weinberg points to as imposing implementation costs on members include the Verified by Visa online authentication system and the so-called Level II and Level III types of transaction detail, important selling points for commercial cards that try to replicate electronically the data provided by traditional paper invoices. Fote, who dreamed of First Data as a lower-cost alternative to Visa and MasterCard, retired late last year. Some analysts say the business case for the in-house network started to fall apart with the defections of some of First Data's large clients, especially JPMorgan Chase & Co., which recently switched its giant card-issuing processing business from First Data to Total System Services Inc. (TSYS).

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