Acquirers Enlarge the AmEx and Discover Merchant Networks

American Express Co. and Discover Financial Services both report that enlisting bank card acquirers to grow their merchant networks is paying off. Until their initiatives started, merchants had to deal with separate customer-service staff and received separate statements for their respective AmEx or Discover accounts. That made taking brands more cumbersome than taking Visa and MasterCard, acceptance of which U.S. acquirers typically sell together. Discover, which had signed virtually all major national merchants as acceptors since launching in the mid-1980s but lagged among small ones, broke the ice in July 2006 when it struck a deal with First Data Corp. to sign small merchants for Discover card acceptance. Other deals with major acquirers such as Global Payments Inc. and Chase Paymentech followed. Discover now has 96 acquirers in its fold, according to a spokesperson. At their recent pace, they've been bringing in about 6,000 locations a day, Matt Johanson, vice president of acquirer relations, tells Digital Transactions News. “We are making very good progress there,” he says. “We are seeing tremendous growth in acceptance points.” In a typical deal, Riverwoods, Ill.-based Discover sells a portfolio of small-merchant accounts to the partner acquirer. The acquirer handles underwriting in accordance with Discover guidelines, customer service, and includes Discover transactions on merchants' bank card statements. Discover gets an ongoing revenue stream through the relationship. The goal was to get Discover's merchant network up to parity or near parity with the Visa/MasterCard merchant base, which now has an estimated 7.3 million U.S. merchant locations. Discover won't reveal the exact size of its network, but says it was at about 85% of the Visa/MasterCard base in 2007. AmEx announced a similar but not identical initiative in late 2007 called OnePoint. The third-party acquirers would sign merchants for AmEx acceptance, but AmEx would own the merchant relationships and set pricing. The acquirers would earn residual income from the accounts and, as they do with Discover, handle customer service and statements. AmEx's first partner was First Data, followed by Elavon and Heartland Payment Systems Inc. in early 2008. Since then, Innovative Merchant Services, an independent sales organization owned by accounting-software maker Intuit Inc., PNC Merchant Services, and iPayment Inc. have joined the program, according to an AmEx spokesperson. “We do expect a few more announcements,” she says. New York City-based AmEx stopped disclosing the size of its merchant base in the 1990s, but the spokesperson indicates OnePoint is helping it to grow. “We're delighted with the results so far,” she says. Last week, Atlanta-based Elavon, the merchant-acquiring subsidiary of U.S. Bancorp, said it is making the program available through its 170 ISOs and 1,500 community agent banks. The program gives Elavon's direct sales force as well as the ISOs and agent banks another brand to sell, with the hook being one statement and a single service point for small and mid-size merchants, says Elavon executive vice president Mike Passilla. “We quickly saw the value in it,” he says.