Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
@DTPaymentNews
Can First Data Corp. shake its reputation as the aircraft carrier of the payments industry, a behemoth processor that is anything but nimble? It can, according to a new report from a securities firm.
“First Data becoming increasingly competitive,” says the headline in the report by Chicago-based First Analysis Securities Corp. The report is based on information First Data executives presented at the company’s Investor Day on Nov. 16. At that event, executives outlined plans to improve the company’s wide-ranging business lines that include merchant acquiring, card-issuing services, prepaid cards, and other units.
Through a variety of bank joint ventures, direct business, and independent sales organization relationships Atlanta-based First Data is the nation’s largest merchant acquirer. It’s also the leader in providing credit and debit card issuers with services ranging from card and statement production to transaction processing. But rival processors such as Global Payments Inc. on the acquiring side and Total System Services Inc. (TSYS) on the issuing side have “benefited for many years from First Data’s historical weaknesses,” the First Analysis report says.
In acquiring, First Data has suffered from high merchant and sales-force turnover. At First Data’s two most recent quarterly earnings conference calls with analysts, the top brass themselves turned the spotlight on high attrition rates among small and mid-sized U.S. merchants.
And other acquirers, including Global Payments and Vantiv Inc., recognized faster than First Data the opportunity presented by working with independent software vendors (ISVs) and value-added resellers (VARs). These entities develop business-management applications that, when offered with payment processing, give a merchant a stronger reason to stick with an acquirer other than just low pricing for traditional payment processing.
Part of the merchant-attrition problem was customer service, according to report author Lawrence Berlin, a First Analysis vice president. “When others were focused on customer service, First Data was not,” Berlin tells Digital Transactions News
A related problem was turnover in the sales force, which can worsen merchant attrition because merchants are more likely to stick with an acquirer if they see a familiar face, he says. “Their sales force churn was big,” says Berlin.
But First Data is making progress on those fronts, Berlin says. The company has changed its sales-force compensation structure and management team. According to a company Investor Day presentation, voluntary sales-force attrition fell 25% in the third quarter from year-earlier levels.
The presentation says First Data is working on improving services for small and mid-size businesses by implementing simplified pricing, providing rapid setup and activation, and offering digital self-service. First Data, which has made its Clover line of tablets and mobile point-of-sale hardware the standard offering for small merchants, also says the retention rate for merchants using the Clover Station tablet is 10 percentage points higher than for merchants using non-Clover terminals.
Meanwhile, on the ISV/VAR front, First Data is bringing in outside developers to offer software applications for Clover devices. The company also developed a mobile app for the Chick-fil-A restaurant chain and software for petroleum marketer ExxonMobil Corp., which offers customer the pay-at-the-pump Speedpass service.
“By adding this type of functionality, First Data and other merchant acquirers make themselves more attractive to clients, add a revenue stream, and reduce churn,” says the First Analysis report.
On the card-issuing side, First Data had lost market share but over the past couple of years has been turning the situation around by promoting its large product suite and aggressively adding financial-institution clients, according to First Analysis. “We think First Data’s renewed energy will make it more competitive in the card-issuer outsourced service market,” the report says.
Long burdened by more than $20 billion in debt as a result of its 2007 leveraged buyout by Kohlberg Kravis Roberts & Co., First Data, which had an initial public stock offering last year, has been refinancing many of its borrowings to reduce interest expense. The company had $18.5 billion in net debt as of Sept. 30.
