It's official: JPMorgan Chase & Co. and First Data Corp. will end their joint venture that owns Chase Paymentech Solutions LLC, the world's largest merchant acquirer, by the end of the year. The announcement on Tuesday morning was widely anticipated following the buyout of First Data last year by private-equity firm Kohlberg, Kravis, Roberts & Co. that gave JPMorgan Chase an opening to end the venture before its scheduled 2010 expiration (Digital Transactions News, May 19). For the first time, however, the two owners are giving a glimpse of how they are handling the Solomonic task of dividing up Chase Paymentech's 600,000 merchants and other assets. Banking giant JPMorgan Chase owns 51% of the venture and processor First Data owns 49%. At first glance, their solution seems rather simple: the default option will be that each merchant would stay on its existing processing platform. “What we don't want to cause is any disruption of customer service,” Mia Shernoff, Chase Paymentech's executive vice president of marketing, tells Digital Transactions News. “We are here to ensure customer service. That would mean that all the customers on their existing platforms will remain on their existing platforms. That's our goal.” The companies also have reached agreement about the future of Chase Paymentech's most valuable asset: its processing platform in Salem, N.H., for card-not-present merchants: Chase gets it, but First Data will get a copy of its software. Originally developed for catalog merchants, the so-called Salem platform serves about 70% of the top 500 Internet retailers, making Chase Paymentech by far the leading e-commerce merchant acquirer. JPMorgan Chase also will get most of Chase Paymentech's 2,700 employees, its Dallas headquarters, and Canadian and European operations. President and chief executive Mike Duffy and his senior managers also are likely to go with the bank, though that's not official yet. “It is anticipated that he and the management team will be moving to Chase,” Shernoff says. When first disclosed by Digital Transactions News March 14, the impending break-up of Chase Paymentech seemed to put First Data at a disadvantage. The Greenwood Village, Colo.-based processor will lose merchant referrals from JPMorgan Chase's 3,000-plus branches and the scale brought by Chase Paymentech's 19.7 billion total transactions last year. But there are upsides for First Data. Although the companies would not confirm it, First Data seems likely to get Chase Paymentech's biggest customer: Wal-Mart Stores Inc., the world's largest retailer. It also is getting Chase Paymentech's independent sales organization business, a highly valued commodity in today's merchant-acquiring market because of ISOs' ability to find higher-margin small merchants. And by getting a copy of the Salem platform, First Data will be able to go head to head with Chase for e-commerce merchants, says electronic-payments consultant Steve Mott, president of Stamford, Conn.-based BetterBuyDesign. “It creates for the first time real competition in the card-not-present space,” he says. The result, he adds, could be innovations in risk control and other services for e-commerce merchants. By taking full control of its merchant-acquiring arm rather than sharing it with an outside processor, the move by Chase is in keeping with the proclivities of its chief executive, James Dimon, who brought the processing of Chase's 100-million-account credit card file in house earlier. “It was really a strategic view that the payment business and that merchant-acquiring business is pretty complementary to our business as a credit card issuer, and it made sense to bring it in-house,” says a Chase Card Services spokesperson. One issue still unresolved is the use of the well-known Paymentech name. JPMorgan Chase will call its merchant-acquiring entity Chase Paymentech. But First Data also has rights to the Paymentech name, a First Data spokesperson says. She adds, however, that First Data hasn't decided if it will use it. JPMorgan Chase, according to sources, is expected to retain Chase Paymentech's processing platform in Tampa, Fla., which serves service point-of-sale merchants.
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