TransFirst’s Fifth Third Deal Bulks up Its Processing Heft

TransFirst, a Dallas-based merchant processor, expects its acquisition of the third-party processing business of Fifth Third Bank Processing Solutions to drive down its transaction costs and give it a sharper edge when it comes to pricing. The deal, announced yesterday and expected to close April 1, will add 90 million annual credit and debit card transactions representing about $7.5 billion in dollar volume to the traffic TransFirst runs through its four data centers, or about a 60% jump in transactions. No price has yet been released. As part of the acquisition, TransFirst picks up some 70,000 merchants, mostly small and independent stores, that have been serviced by independent sales organizations (ISOs), merchant-level sales agents, and agent banks. The merchant count will nearly double the roster of retailers the company serves. Fifth Third Bancorp's processing arm will retain the clients its Cincinnati-based parent bank has signed directly. With the acquisition, TransFirst adds a significant new ISO and MLS presence to its stable of third-party marketing agents. Up to now, its strength has lain in its network of agent banks. It also enhances its economies of scale in its core processing business. “It adds a significant amount of scale to TransFirst,” says Andrew Rueff, vice president of mergers and acquisitions for the company. “It gives us an additional competitive edge relative to pricing.” By driving more transactions across a fixed-cost processing infrastructure, processors enjoy lower per-transaction costs, which they can build into their pricing schedules. At the same time, the merchant contracts are similar to those the company services now, Rueff says, representing a mix of general retail, hospitality, and service industry, with some Internet and other card-not-present merchants. As part of the deal, Fifth Third Bank Processing Solutions will refer ISO and agent-bank business to TransFirst, which will allow the processor to add more volume over time. It was important to Fifth Third, Rueff says, to sell the third-party business to a processor not owned by a bank. “Any bank that size has to be concerned about competition within their footprint,” he says.