As Chase and First Data Part Ways, Chase Eyes Alternative Payments

Banking giant JPMorgan Chase & Co. and processor First Data Corp. said on Monday they have completed the previously announced split-up of their joint venture called Chase Paymentech Solutions, the world's largest merchant acquirer. The bank-owned Chase Paymentech will focus on alternative payments and geographic expansion with its 51% share of the former joint venture's assets, but it's unclear what First Data will do with its 49% share. The immediate problem was making sure Chase Paymentech's 600,000 merchants suffered no service disruptions by the targeted Nov. 1 separation date. They didn't, according to Chase Paymentech president Mike Duffy and a First Data spokesperson. “Everybody got funds on time and correctly,” Duffy tells Digital Transactions News, adding that staff members have put in a lot of overtime lately, including working until after midnight on Friday. Although the legal and workforce separation is done?Chase Paymentech is getting all but 440 of the joint venture's 2,700 employees?many operational strings remain to be tied up. All merchants are still submitting bank card transactions into the Visa/MasterCard networks through Chase, according to the spokesperson for Greenwood Village, Col.-based First Data. First Data has not yet decided if the Paymentech merchants it inherited will be grouped in a stand-alone entity or reallocated to First Data's other so-called merchant alliances with acquiring banks. And while Chase will continue to use the Chase Paymentech name, First Data also has rights to the Paymentech brand but hasn't yet decided if it will use it. “We're still working on all of that right now,” the spokesperson says. The companies did not reveal the number of merchants going with each former owner. Chase, in contrast, seems to have more of its big-picture plans in place for its Dallas-based acquiring entity. Bank card processing will remain the core service, but alternative payments, both online and physical, will get a lot of development attention, according to Duffy. “That's what the customer wants,” he says, noting that in some European and Asian countries, online alternatives rival traditional card payments in volume. Chase Paymentech already is the top online processor by virtue of its card-not-present processing platform based in Salem, N.H., of which First Data is getting a copy (Digital Transactions News, May 27). Now Chase Paymentech is looking to leverage the growing payment options created by the Internet and physical products such as prepaid cards. Consumers using Green Dot Corp.'s MoneyPak prepaid card product can now manage recurring bill payments through a Green Dot service that runs on a Chase Paymentech backbone that launched about two months ago. “We're having tremendous success there,” Duffy says. “The recurring payment is our target market.” Duffy also notes that Chase Paymentech and First Data were early investors in Bill Me Later Inc., the online credit system that eBay Inc. is buying (Digital Transactions News, Oct. 6). “We were big fans of Bill Me Later,” he says. Chase Paymentech, which inherited the joint venture's Canadian and European merchants with the split up, is eyeing international growth. While it generates some volume from Asia, Chase Paymentech is planning a physical presence on the Continent, Duffy says without giving details. The weakening economic environment is pulling down Chase Paymentech's transaction growth somewhat from its 15% rate earlier this year, but it's still in double digits, Duffy says. Last year Chase Paymentech processed 19 billion transactions and more than $700 billion in bank card charge volume. In 2008's third quarter Chase Paymentech processed 5.7 billion transactions and $197 billion in bank card volume, according to JPMorgan Chase's third-quarter earnings report. Aite Group LLC merchant-acquiring researcher Adil Moussa says in a statement that the “the economic crisis could not have hit at a worse time as the acquiring industry is seeing a slowdown of transaction processing because of consumers' lower spending. A cut in the spending is lowering both Chase Paymentech's and First Data's revenues, which may delay or even freeze some future developments.” Moussa, however, says Chase Paymentech and First Data both could benefit if the slowdown forces smaller processors and independent sales organizations to sell their merchant portfolios. The break-up was precipitated by last year's leveraged buyout of First Data, which triggered a change-of-control provision that gave JPMorgan the right to terminate the joint venture before its contractual end in 2010.