First Data’s Prepaid Business Shines as Struggling Bank Joint Ventures Begin Turnaround

First Data Corp.’s struggling merchant-acquiring joint ventures with three big banks are showing nascent signs of a turnaround, and business is booming in the company’s prepaid card unit, top executives reported Monday.

The Atlanta-based processor reported last year that new merchant referrals from its big joint ventures with The PNC Financial Services Group Inc., Bank of America Corp., and Wells Fargo & Co. had dipped below year-earlier levels. In an early morning conference call to review fourth-quarter financial results, chief financial officer Himanshu Patel said lead flows from the joint ventures had turned slightly positive, but were “still not acceptable.”

“We are down double-digits from where we were in 2016,” he said in response to an analyst’s query. But the recent slight increase eventually will translate into new revenues, he said.

The best news on the JV front was that Pittsburgh-based PNC renewed its contract with First Data early; the new pact runs through 2024, according to chief executive Frank Bisignano. He added that with all three bank partners, First Data is working to transform in-branch merchant-account applications to an entirely digital process.

The joint ventures are part of Global Business Solutions, the merchant-processing unit that is the biggest of First Data’s three major segments. The GBS segment processed 12.8 billion transactions from North American merchants in the fourth quarter, up 6% from a year earlier, and 49.2 billion transactions in all of 2017, also up 6% over 2016. International transactions rose 7% in the fourth quarter to 2.59 billion but were up 18% for the year to 9.76 billion.

GBS’s quarterly segment revenue totaled $1.13 billion, up 10% from a year earlier but only 4% higher after adjustments for currency fluctuations and acquisitions and divestitures. Some $851 million of adjusted revenues came from North America, down slightly from $852 million in 2016’s fourth quarter.

Bisignano also reported that First Data continues to develop its integrated software vendor business, especially now that it has completed its 2017 acquisitions of CardConnect Corp. and BluePay Holdings Inc., two independent sales organizations with strong ISV presences. Twenty-four ISVs went live on First Data’s platform in the fourth quarter. “We’re confident we’re taking market share in the integrated space,” Bisignano said.

Also, the company has shipped more than 400,000 of its Clover mobile point-of-sale devices, according to Bisignano. The unit count rises to 750,000 when the Clover Go card-reading dongle for smart phones is included. Some $50 billion in payment volume is being processed annually on Clover devices, he said.

While prepaid cards are far from First Data’s biggest business, they are among the company’s top performers in growth. Revenues from what First Data calls stored-value services, which include ValueLink closed-loop gift, incentive, and rebate cards, the Gyft digital closed-loop service, and Money Network open-loop prepaid cards, rose 19% in the fourth quarter to $116 million. “Those are clearly growth businesses for us,” Patel said.

Stored-value products are part of First Data’s Network & Security Solutions segment, where fourth-quarter revenues rose 4% year over year to $406 million. The segment also includes the Star electronic funds transfer network and debit card processing, data-security services, and the TeleCheck check-verification and guarantee business. EFT revenues were flat at $128 million because lower yields on processing services offset mid single-digit transaction growth, according to Patel. EFT and stored-value transactions combined rose 10% in the fourth quarter to 6.11 billion.

Global Financial Solutions, the segment that provides card processing, production, and related services for bank and retail card issuers, had 906 million accounts on file from North American issuers in the fourth quarter, up 6%. International accounts on file increased 13% to 170 million. Revenues declined 1% to $412 million.

Including a $663 million fourth-quarter tax benefit, First Data reported quarterly net income of $948 million, up 394% from $192 million a year earlier, on total revenues of $1.78 billion, an 8% increase from $1.65 billion in the prior-year quarter. Full-year net income jumped 249% to $1.47 billion from $420 million in 2016 on revenues of $6.76 billion, up 2% from $6.6 billion.