First Data Readies an ISO Thrust with Unified Pricing, New Terminal

Processing giant First Data Corp. soon will launch an initiative aimed at furthering its ties with the high-margin sector of the acquiring market controlled by independent sales organizations by offering ISOs a new terminal and unified pricing for all four major general-purpose card brands, sources tell Digital Transactions News. The initiative is just one part of a multi-pronged effort by Edward Labry, president of FDC's new First Data Commercial Services unit, to reinvigorate the company's big merchant-processing business since he took his post about six months ago. After months of working behind the scenes to shore up relations with ISOs and banks, Greenwood Village, Colo.-based First Data unveiled the first part of Labry's strategy last week when it announced a major merchant-processing agreement with Discover Financial Services LLC (Digital Transactions News, July 14). A First Data spokesperson told Digital Transactions News by e-mail that some of what the market is hearing about First Data may involve the Discover venture as well as a June agreement under which First Data will market Automatic Data Processing Inc.'s small-business payroll services to companies with fewer than 50 employees. But, regarding an ISO initiative, the spokesperson said she had no additional information. According to payment-industry sources, however, the effort will be based on two major components: a new Internet Protocol terminal and acceptance of Visa, MasterCard, American Express and Discover. FDC reportedly will offer ISOs a single wholesale price of somewhere around 2% of the sale for all four brands, though ISOs would be free to set their own retail pricing to merchant clients. Such a plan could be particularly useful in getting smaller merchants to take American Express Inc.'s cards, which generally carry the industry's highest discount rates. AmEx has augmented its own sales force with ISO help for years, but merchant-acquiring experts say the company still has an acceptance gap outside its original travel-and-entertainment franchise. “It's been a long haul to get the ISOs to focus on them [AmEx],” says one acquiring expert. “With the exception of restaurants, it's a hard sell.” Details about the new terminal, including its pricing and whether it will accept PIN-debit cards, remain unclear, though sources say it will be IP-enabled. The terminal, however, may signal a revival of LinkPoint International Inc., a First Data-owned terminal maker. “I was told by someone in a position to know that they were going to develop and manufacture the entity themselves,” says processing consultant Paul R. Martaus, president of Mountain Home, Ark.-based Martaus & Associates. Martaus says First Data may go with the in-house terminal on the belief that the economics will be more favorable for the ISO effort than using terminals from outside vendors. First Data already owns a large ISO, Cardservice International, and through its so-called merchant-alliance partner banks and other processing relationships has ties with many more. But adding more ISOs that currently don't have relationships with First Data-affiliated merchant-acquiring banks won't be easy, according to Martaus. In order to take advantage of the program, such ISOs would have to change their sponsors or add new ones. (Under Visa/MasterCard rules, banks must sponsor ISOs into their respective networks.) Most ISOs work for one merchant bank exclusively. “The problem is you don't change relationships in the industry,” he says. “They [banks] get very upset if they lose that exclusivity.” That said, ISOs are always asking, “How much can I make by Friday?” and might be persuaded to change relationships if the pricing is right, says Martaus. And success with the new program would help Labry and Henry C. “Ric” Duques, who started his second term as First Data's CEO last November, show that they're paying attention to a sector in which First Data was widely viewed has having customer-relations problems. “We are perceived as being too big, and we are perceived as being hard to do business with,” Labry said in a January conference call with investors. Labry came to First Data in 2004 when FDC bought Concord EFS Inc., where he was president of the payment processor that owned the Star electronic-funds transfer network. “I think Ed has done a remarkable job in a short period of time in fixing the problems First Data had internally,” says Steve Mott, who heads the BetterBuyDesign payments consultancy in Stamford, Conn., adding that he believes Labry has more big plans to follow. It's no surprise that First Data, not unlike other large players in the acquiring industry, is trying to strengthen its ties with ISOs. Small merchants, the lifeblood clients of ISOs, are much less price-sensitive than large corporations. Citing his own research and outside data, Mott estimates ISOs account for 20% of acquiring-industry transaction volume but 65% of industry margins.