Saturday , January 19, 2019

Bank Joint Ventures Still Crimping First Data’s Merchant Unit

Most components of First Data Corp.’s massive merchant-acquiring machine performed well in the third quarter, and the company renewed its acquiring contract with Wal-Mart Stores Inc., the world’s largest retailer. But new merchant referrals from First Data’s joint ventures with three big U.S. banks remain problematic.

“These businesses have remained softer than we had anticipated at this time a year ago,” chairman and chief executive officer Frank Bisignano said on a Monday morning conference call with analysts. “We are engaged in deep dialogs with senior leaders at each of our bank partners aimed at renovating these businesses, and these talks have taken a greater sense urgency within the banks.”

“We are engaged in deep dialogs with senior leaders at each of our bank partners aimed at renovating these businesses,” says First Data CEO Bisignano. (Image credit: First Data)

The joint ventures are with Wells Fargo & Co., Bank of America Corp., and The PNC Financial Services Group Inc. The ventures generate a large share of revenues in First Data’s merchant-processing Global Business Solutions unit, which is the company’s biggest segment. GBS’s North American revenues alone account for more than 40% of First Data’s total segment revenues.

Earlier this year, company officials hinted that referrals of business customers from Wells Fargo had dropped off in the wake of that bank’s scandal involving account openings without customer approval. But today, First Data indicated that new merchant business from all three banks still is down in aggregate in the mid-single digits percentage-wise after bottoming out late last year.

“While the rate of lead-flow decline has somewhat moderated, the absolute level of lead flows remains well below year-ago levels, and JV revenue remains challenged as a result,” chief financial officer Himanshu Patel said on the call.

The planned fix includes more leads from digital channels, a streamlined online boarding process for new merchant-account applicants, and more cross-sells of First Data products through the bank sites, according to Bisignano.

“These are fabulous, fabulous franchises that have a lot of [online] traffic,” Bisignano said of the banks. “We’ve built the technology to, you know, automatically onboard and credit-approve.” That new sign-up system will be fully operational in 2018’s first half, he said.

Meanwhile, First Data has largely overcome earlier problems with merchant attrition in its direct processing business with small and mid-sized merchants, according to Patel.

“Attrition rates in that business continue to improve year over year,” he said. “We’d expect that trend to keep marching steadily forward.”

First Data has high hopes for new business through independent software vendors thanks to its acquisition of CardConnect earlier this year and its pending acquisition of BluePay Holdings Inc.  The acquisitions are complementary because CardConnect’s strength is in point-of-sale payments while BluePay’s is in card-not-present transactions, according to Bisignano. “We’re well positioned for the future,” he said.

Bisignano gave no details about the renewed Wal-Mart contract. He noted, however, that Fareportal, which he said is the world’s third-largest online travel agency and whose consumer brands include CheapOair and OneTravel, switched in the third quarter from another acquirer to First Data.

GBS posted third-quarter segment revenue of $1.1 billion, up 5% from a year earlier. Some $833 million of that came from North America, up 2%. The North American transaction count increased 5% to 12.5 billion while international transactions jumped 18% to 2.45 billion.

First Data’s Global Financial Solutions unit, which provides a host of processing services for credit and debit card issuers, saw a 5% year-over-year increase in segment revenue to $416 million. The company’s third segment, Network & Security Solutions, which includes the Star debit network, prepaid cards, and security services, posted a 5% revenue increase to $395 million.

In all, First Data reported net income of $296 million, an increase of 124% from $132 million in 2016’s third quarter, on revenues of $1.73 billion, up 2% from $1.69 billion.

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