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Lower Costs Plus More Control Could Be Part of Fiserv’s Ambition for a Bank Charter

Giant payment processor Fiserv Inc. wants to take on another aspect of the business with its application for a special bank charter in Georgia.

The charter for a merchant-acquirer limited purpose bank, if approved, would enable Brookfield, Wis.-based Fiserv to interact with card networks directly instead of operating through a financial institution sponsor, according to the Georgia Department of Banking and Finance definition of this type of institution.

Fiserv, in a statement to Digital Transactions News, says the charter will enable it to authorize, clear, and settle credit and debit card transactions.

“Fiserv has no intention to become a traditional financial institution or regional bank. Fiserv also will continue to partner with financial institutions that want to remain active in the market as acquiring sponsors,” the statement says. “We are taking this step in response to recent market changes, as third-party financial institutions that have traditionally provided access to the card networks as sponsor banks increasingly focus on other areas of their business.” It is uncertain which financial institutions may have withdrawn as sponsor banks.

The next step for Fiserv is to wait for Georgia to review its application. Generally, a decision on the application will be delivered within 90 days after the official acceptance of it, the Department says, though it could be extended if needed.

If approved, the charter would enable Fiserv to have more control over the payment process, says Jared Drieling, chief innovation officer at TSG, an Omaha, Neb.-based payments advisory firm. “…Acquirers are required to use bank partners (sponsor banks) as part of payment processing. This would allow Fiserv to provide processing without a sponsor bank. This would drive down costs for Fiserv,” Drieling tells Digital Transactions News in an email message.

Others suggest similar benefits. “If Fiserv gets the charter, they will have greater control over the process flow and they will be free to price their services independent from third-party processors,” says Thad Peterson, strategic advisor at Datos Insights, a Boston-based financial-services advisory firm. “That said, it’s an added layer of complexity for Fiserv to manage efficiently, and that’s a challenge for any large, horizontal organization.”

Greater competitive pressures may be a factor for Fiserv, too, especially as banks themselves set up direct relationships with merchants and as tech entrants like Stripe and Adyen eat into processing market share, says Matthew Goldman, founder, chief executive, and managing member of Totavi LLC, a Pasadena, Calif.-based consulting firm.

“Payment acceptance is about technology, but also scale and pricing,” Goldman says. “If Fiserv believes they can squeeze a few basis points of margin out of their proposals and undercut competitors by pursuing the charter, then I think it makes a lot of sense for them to pursue. Fiserv can win deals on pricing if this structure works. It absolutely has the potential to shift spend from higher-cost providers.”

As for which current sponsor banks may have reduced their acquiring footprint, Drieling says there are some financial institutions that have left or are planning to leave the BIN-sponsor business. These financial institutions issue a bank identification number to enable payments providers to connect to card networks. Fiserv’s statement noted this change, he says.

“However, this [move by Fiserv] may also be part of a larger strategy as it relates to offering (or having more control over) embedded finance tools as it relates to retaining and attracting software partners who are seeking these types of services,” Drieling says.

“On the flip side, Fiserv will be exposed to more regulatory challenges, burdens, and oversight” because of its banking move, Drieling continues. “The acquisition of Finxact a few years back may have been an early move on a larger embedded-finance strategy. Finxact focuses on powering bank technology systems through APIs.”

Embedded finance refers to cases when financial services, such as banking, insurance, or lending, are integrated into non-financial user experiences, as defined by Juniper Research.

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