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First Data Reports an Easing in Its Small-Merchant Attrition Rate
November 7, 2016

By Jim Daly
@DTPayment News

First Data Corp. said attrition in its small and mid-size North American merchant portfolio eased off in the third quarter, but chief executive Frank Bisignano cautioned that getting attrition down to acceptable levels will take more time.



Image Credit: First Data Corp.
Bisignano: “Q3 saw a meaningful reduction in the annualized attrition rate."

“Q3 saw a meaningful reduction in the annualized attrition rate,” Bisignano told analysts during Atlanta-based First Data’s conference call early Monday to review quarterly results. “We know we have more work to do here to drive significant improvement, and we’re relentlessly focused on it.

Chief financial officer Himanshu Patel pegged the attrition rate as in the mid-30s [percentage points], “and that’s about roughly 2 percentage points better sequentially and year over year.”

High merchant attrition has been a hot topic for the big payment processor for several quarters. Merchant acquirers want to keep attrition as low as possible because of the expense of finding and approving new merchants, many of which care little about payment services other than their acceptance costs. Omaha, Neb.-based consulting firm The Strawhecker Group recently estimated industrywide annualized attrition among small and mid-sized merchants at 24.1% for the first quarter.

Bisignano and Patel provided few details on exactly what First Data did to get the attrition rate down in the third quarter, although earlier this year they talked about holding off on price increases and improving service and product offerings. Bisignano indicated the company would have more to say on the topic at its upcoming Investor Day set for Nov. 16 in New York City.

First Data’s merchant-acquiring unit called Global Business Solutions, the company’s biggest segment, posted third-quarter revenues of $1 billion, up 1% from a year earlier and 3% on a constant-currency basis. Earnings of $455 million before interest, taxes, depreciation and amortization (EBITDA) were up 6%, or 8% when adjusted for currency changes. Some $819 million of GBS’s revenues came from North America, where revenues grew 1%. Lower revenue per transaction largely offset a 7% increase in transactions.

First Data’s Europe-Middle East-Africa region produced $137 million in acquiring revenues, up 2% as reported and 8% on a constant-currency basis. Latin American revenues jumped 12%, or 45% when adjusted for currency fluctuations, thanks to strong business in Brazil and Argentina. Merchant revenues in the Asia-Pacific region declined 2%, or 6% on a constant-currency basis. First Data recently sold its Australian ATM operation for $42 million to Canada’s DCPayments, which shortly thereafter was acquired by Cardtronics plc.

First Data’s card-issuer processing segment, Global Financial Solutions, posted revenues of $397 million, up 2% as reported and 5% on a constant-currency basis, and EBITDA of $158 million, an increase of 9% and 13%, respectively. In North America, revenues rose 2% to $236 million and card accounts on file increased 4%. But card-personalization revenues, which were going great guns a year ago because of heavy chip card issuance by U.S. banks and credit unions driven by the card networks’ October 2015 EMV liability shift, declined in the third quarter with the cresting of the EMV issuance wave.

Meanwhile, the Network & Security Solutions segment reported revenues of $378 million, up 1%, and EBITDA of $166 million, up 2%. NSS includes the Star debit network, debit processing, the Telecheck check service, and data-security and other services. Price compression in some long-term debit-processing contract renewals reduced revenue growth, First Data said.

In all, First Data reported net income of $132 million versus a loss of $126 million in 2015’s third quarter, on total revenues of $2.94 billion, up 1% as reported and 2% on a constant-currency basis. Still heavily indebted thanks to its 2007 leveraged buyout by Kohlberg Kravis Roberts & Co., First Data nonetheless has paid down nearly $800 million in debt so far this year, Bisignano said. The company, which completed an initial public offering of stock in October 2015, had $18.5 billion in net debt as of Sept. 30.

 


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