Paymentech-CMS Combo Creates Huge Acquirer?with Potential Pitfalls

This week's announced integration of giant merchant acquirers Chase Merchant Services LLC and Paymentech L.P. by their respective owners (Digital Transactions News, Oct. 5) creates a single entity of unprecedented scale?more than $500 billion in annual bank card charge volume through 13 billion transactions in the U.S. and Canada?but one with plenty of potential operational problems if integration isn't done right, according to analysts. “There's never been an acquirer approaching this size,” says C. Marc Abbey, a partner at Linthicum, Md.-based First Annapolis Consulting Inc. who follows the payments industry. “The implications are mind-boggling. ” The combination puts the new Chase Paymentech Solutions LLC well ahead of the No. 2 acquirer, Bank of America Corp., with about $300 billion in annual charge volume. BofA was a major acquirer itself before buying another leader, National Processing Inc., in October 2004. Besides the obvious economies of scale, Abbey notes that CPS will be able to offer merchants a wide array of services for different markets. Paymentech, for instance, is the industry's recognized leader in mail order/phone order and Internet-payment services, while Chase Merchant Services has breadth in the travel-and-entertainment and retailing sectors. “There's not a whole lot of overlap in their strategic businesses,” Abbey says. Buzz about the combo started back in January 2004 when New York City-based JP Morgan Chase & Co. announced it would buy Chicago-based Bank One Corp., which owned about 53% of Paymentech. Greenwood Village, Colo.-based processor First Data Corp. owned the rest. Chase Merchant Services was a so-called merchant alliance jointly owned by Chase and First Data that used First Data's Merchant Services subsidiary as its back-end processor. “I'm glad that it's been announced?you have two entities that didn't know what their fate was for the longest time,” says consultant and former Paymentech executive Larry De Palma, chief executive of The De Palma Group in Hudson, N.H. What lies ahead now is the need to integrate disparate and far-flung processing centers, according to De Palma. Paymentech has a big processing facility for mail-order/phone-order transactions in Salem, N.H., and a retail processing center in Tampa, Fla. CMS relies on First Data Merchant Services processing centers in Hagerstown, Md., and other locales. As part of the integration, Chase Paymentech Solutions has struck a five-year processing contract with FDMS. “Now, the huge undertaking is getting all the products and services on the same playing field,” says De Palma. JP Morgan Chase will own 51% of Chase Paymentech Solutions, with First Data holding 49%. Michael P. Duffy, currently president and chief executive of Paymentech, will head CPS with oversight from a board drawn equally from each owner. Headquarters will be in Dallas, Paymentech's home base.