The proposed merger of Fiserv Inc. and mega-processor First Data Corp. has huge implications for many parts of the payments industry. But the deal, if consummated as planned, could have an especially large effect on the U.S. debit card market.
First Data owns the Star electronic funds network, while Fiserv owns the rival Accel network. The planned merger would give Brookfield, Wis.-based Fiserv, as the successor company will be known, a commanding presence in the rapidly changing debit market.
Star, Accel, and their few remaining direct competitors originally served the ATM market and then expanded into providing PIN-based debit card acceptance at grocery stores and a few other merchant categories. But Mastercard Inc. and Visa Inc. also entered the PIN-debit market, and they effectively locked up the market for signature-based debit cards in the 1990s. In recent years, the surviving PIN-debit networks have been broadening their range of services, including by offering signature and PINless transactions, to enhance their appeal to merchants and debit card issuers.
One possibility is that federal antitrust regulators could intervene. Back in 2003, when First Data was trying to buy the big processor Concord EFS Inc., the U.S. Department of Justice filed suit to block the merger. At the time, First Data had a majority stake in the NYCE EFT network, while Concord owned Star as well as the MAC and Cash Station networks. First Data agreed to divest its NYCE stake to get the DoJ’s blessing for the Concord acquisition, and now NYCE is owned by Fiserv rival Fidelity National Information Services Inc. (FIS).
“One of the questions that deserves to be put on the table is what’s the regulatory perception of this,” says debit consultant Paul Tomasofsky, a partner at Arnold, Md.-based McGovern Smith Advisors.
Putting Star and Accel under one roof will raise different regulatory questions than the First Data/Concord deal did in light of the vast changes in the debit market since then, according to Tomasofsky. The DoJ, he notes, looked at the First Data/Concord marriage “fairly narrowly, looked at only PIN-debit.” But he wouldn’t predict what regulators might do, if anything, regarding Star and Accel.
Others note that the PIN-debit networks have largely become invisible to consumers, with their brands mostly gone from debit cards that bear the Visa or Mastercard brands on the front. Merchants, however, route transactions to Star, Accel, and other EFT networks through back-office system protocols.
“The brands of both networks are neutered,” consultant Eric Grover, principal of Minden, Nev.-based Intrepid Ventures, tells Digital Transactions News by email. “They’re not on the front of debit cards. They’re rarely on the back, and even then cardholders don’t look for them on the card or at the POS. The cardholder assumes his Star or Accel payment is a Mastercard or Visa transaction. It would, however, make sense to consolidate under one brand and try to revivify it.”
Jordan McKee, research director for retail payments at New York City-based 451 Research, says a Star-Accel marriage would serve as an “interesting backbone” that augments Fiserv’s existing package of payment services dubbed Fiserv NOW. “However, there is also the possibility that regulators will require a divestiture of one of the networks,” he says by email.
Of course, the merger presents issues extending far past debit, according to McKee. “Beyond the integration challenge that uniting these two industry giants will present, the deal comes at a time when merchant and bank clients are pressing First Data and Fiserv to become more agile and innovative to help them keep pace with new market entrants. This deal could be a major distraction that delays execution on these existing customer demands.”