Discover Processing Deal Caps Year of Gains for First Data

First Data Corp., which spent much of last year integrating its massive acquisition of Concord EFS Inc., has picked up another potentially huge source of transaction volume by winning the processing business for the new Wal-Mart/Discover card announced last week. As a result of the agreement, the Denver-based transaction-processing giant becomes the first third-party processor to be certified to process credit cards on the Discover network. The new card, which is expected to appear in March, will be issued by GE Consumer Finance Inc., which handles Wal-Mart Stores Inc.'s private-label portfolio, and will settle over Discover Financial Services Inc.'s network (Digital Transactions News, Jan. 24). The Wal-Mart/Discover deal caps a year in which FDC scored solid gains in its core transactions businesses. According to statistics the company released yesterday as part of its fourth-quarter and 2004 earnings release, FDC's merchant-processing segment handled 19.8 billion transactions last year, up 62% over the 2003 volume of credit and debit card transactions processed for merchants. When adjusted for volume acquired through Concord, the company says, the increase in transactions was still 13%. Merchant traffic in the fourth quarter alone hit 5.6 billion, up 64% over the year-ago period. As a result, FDC's merchant-fee income jumped 39%, to $2.8 billion for 2004. The company announced it added nine new bank clients and 458,000 merchant locations last year. It sold two merchant portfolios during the year to Nashville, Tenn.-based independent sales organization iPayment Inc., and yesterday indicated more such deals may be in the offing. The portfolio sales are part of “First Data's strategy of maximizing returns on the merchant portfolio by selling non-sales supported merchants to partners that can match sales forces to these merchants,” the company says in its earnings release. “As in the past, First Data will continue to review its merchant portfolio and execute initiatives which will maximize shareholder return.” The Concord acquisition included the national Star electronic funds transfer network, which closed the year with 135 million cards carrying its brand. The network reached agreements during the year with both Chevy Chase Bank and Co-op Network Credit Union Group to extend existing contracts. “This year we had great success in signing financial institutions to our Star network,” said Charles Fote, FDC's chief executive, in a statement. The integration of Concord, he added, allowed FDC to shave overall operating costs by $30 million last year, meeting a target set at the time of the acquisition. He said the company is “on schedule” to hit total projected savings of $205 million. The economies are coming from such moves as merging data centers and integrating sales forces. FDC's remittance business, operated by its Western Union unit, saw total consumer-to-consumer traffic grow 19% last year, to 96.7 million transactions, as the remittance market serving foreign markets, such as Italy and Mexico, became hot. The payments-services business, of which remittances are a part, accounts for 38% of FDC's $10.5 billion in annual revenue, followed closely by the merchant-processing segment at 36%. The number of domestic card accounts the company manages for issuers, meanwhile, climbed 17% to 369.9 million. Total accounts, including those processed for overseas issuers, reached 406 million, a number the company projects will grow to 430 million by year-end.