Thursday , October 17, 2019

Integrating Fiserv and First Data Could Take Up to a Decade, Report Says

The proposed mega-deal that has Fiserv Inc. buying First Data Corp. for $22 billion presents integration issues that could take up to 10 years to iron out, according to a new report.

“The integration of two companies of this scale will undoubtedly be a challenge—the short-term shock will take more than 18 months to recover from, with longer implications (culture, systems, etc.) possibly resulting in friction for a decade,” says the report from merchant-acquiring consulting firm The Strawhecker Group.

Processor mergers involve integrating disparate computer and other technological systems as well as combining executive, sales, marketing, and administrative systems. While Fiserv has made its share of acquisitions, especially of bill-payment provider CheckFree, First Data is famous for the companies big and small it has swallowed over more than three decades. They included giants such as First Financial Management, Card Establishment Services, and Concord EFS down to smaller tech companies such as Clover to, more recently, specialist processors such as CardConnect and the independent sales organization BluePay.

First Data hit its share of bumps during [other] integrations, according to Jared Drieling, senior director of business intelligence at Omaha, Neb.-based The Strawhecker Group.
First Data hit its share of bumps during those integrations, according to Jared Drieling, senior director of business intelligence at Omaha, Neb.-based TSG. “First Data had been struggling to consolidate all their platforms,” says Drieling, a former First Data executive.

What’s more, on the Fiserv side, “many community banks that use Fiserv’s core systems already complain that they are held back and don’t receive the service/functionality they desire,” says the report. “The lack of timely response and support from Fiserv has hindered financial institutions from adopting emerging technology.”

The integration distractions could make the merged company’s customers vulnerable to entreaties from competitors. “For example, if Fiserv/First Data banks are underserved, are Clover processing merchants vulnerable?” asks the report, referencing small and mid-size businesses that use First Data’s popular line of point-of-sale products. “The potential lack of response time/distraction from this merger may leave an opportunity for acquirers to gain share from Clover’s merchant base—see the recent launch of the Vital POS product line by TSYS, for example.”

But if it’s successful with integrations and in developing products competitive with those from fintech players such as Square Inc., a combined Fiserv/First Data could solve several problems afflicting the predecessor companies. Brookfield, Wis.-based Fiserv, for example, has little presence in merchant acquiring while some of its direct competitors, especially Fidelity National Information Services Inc. (FIS), are raising their profiles in that space, according to Drieling. Atlanta-based First Data, the nation’s biggest acquirer, will take care of that problem and give Fiserv payment relationships with some of the nation’s largest banks, including Bank of America Corp. and Wells Fargo & Co.

Drieling also notes that First Data processes for many thousands of merchants signed through its referral and other agreements with banks. Bank-sourced merchant accounts tend to last longer than merchant accounts generated by non-bank processors. “In the long term, the U.S. bank sales channel is more profitable,” he says.

For First Data, the acquisition could ease the burden of carrying its $17 billion debt load because of Fiserv’s stronger balance sheet. The debt resulted from Kohlberg Kravis Roberts & Co.’s $29 billion leveraged buyout of First Data in 2007. KKR still controls a majority of First Data’s voting stock and will own 16% of the combined Fiserv/First Data if the deal is consummated, according to the TSG report, citing Bloomberg data.

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