Paymentech-CMS Merger Positions JP Morgan Chase As Processor

JPMorgan Chase & Co. will merge its two acquiring entities, Paymentech L.P. and Chase Merchant Services L.L.C., in a reorganization to be announced soon, sources tell Digital Transactions News. Details of the deal are sketchy at best, but at least one source familiar with the matter says the merger will result in a new entity called Paymentech Payment Services, with current Paymentech chief executive Michael P. Duffy in charge. In making the move, this source says, the bank will buy out First Data Corp.'s minority interest in Paymentech, effectively bringing the operation in-house. The industry has been expecting a move from JPMorgan regarding the two companies ever since the New York-based banking giant took a 53% stake in Dallas-based Paymentech, the country's largest processor of electronic payments, as a result of its acquisition last year of Bank One Corp. “It has not been unanticipated,” says Paul Martaus, an industry consultant based in Mountain Home, Ark. “It's the only logical conclusion.” Neither Paymentech nor First Data would comment for this story. JPMorgan and CMS spokespersons said they would not comment on “speculation.” JPMorgan operates Chase Merchant Services as a joint venture with Denver-based processor First Data. CMS, which is a sales organization marketing card and automated clearing house processing to merchants, relies on FDC for back-end processing. The reorganization, some say, will set up J.P. Morgan as a force in merchant processing, since Paymentech operates front-end systems for both physical point-of-sale and e-commerce transactions. “It's the consolidation opportunity for Chase to own their own platform,” says Kurt Strawhecker, founding partner at Strategic Management Partners, an Omaha, Neb.-based consulting firm. The impact on First Data is not clear. The processing giant operates a handful of merchant processing alliances with banks in addition to the one with J.P. Morgan, and has recently announced it is buying a merchant portfolio from Citigroup Inc. (Digital Transactions News, Aug. 10). One big question mark hangs over the status of its 47% stake in Paymentech, as well as any valuation the market may put on it as part of the reorganization. “That's going to be huge,” says Martaus, who points to Paymentech's profitability in recent months. Paymentech, which has nearly 1,700 employees, handled 8.5 billion transactions in 2004, both card-present and card-not-present. CMS represents some 200,000 merchants and billers.