Rar­ing to in­vest

US-listed bank­ing tech­nol­ogy com­pany looks to ex­pand in SA

Finweek English Edition - - Communication & technology - BELINDA AN­DER­SON

FOR­TUNE 500 COM­PANY First Data, a $7,1bn/year (R50bn) sup­plier of bank­ing tech­nol­ogy ser­vices, is look­ing to ag­gres­sively ex­pand its pres­ence in South Africa and use the coun­try as a spring­board for the rest of the con­ti­nent.

This could in­clude as sig­nif­i­cant-as-pos­si­ble an ac­qui­si­tion, but so far two at­tempts to find the right deal have not panned out.

Ge­orge Zafi­rakis, MD and re­gional vice pres­i­dent of the SEEMEA (South-east­ern Europe, Mid­dle East and Africa) re­gion at First Data In­ter­na­tional (one of three sub­sidiaries of the US group), says if it can’t find the right ac­qui­si­tion in South Africa, it will grow or­gan­i­cally: “It’s not a ques­tion of if, but when.”

Zafi­rakis says First Data con­sid­ers South Africa to be a ma­ture mar­ket with lots of skilled peo­ple.

But he said there was no one com­pany that did ev­ery­thing it needed in the South African mar­ket and smaller deals could prove costly and slow to in­te­grate. The trans­ac­tion would also need to in­clude an el­e­ment of black eco­nomic em­pow­er­ment.

The last deal First Data looked at – worth around $35m, or roughly R250m – had fallen apart partly on price, but also as it was not 100% fit, he said. An ac­qui­si­tion it in­ves­ti­gated a year ago would have been worth of the or­der of $80m, or R565m.

Africa di­rec­tor Este­vao Tokata says though there are com­pa­nies do­ing el­e­ments of what First Data does, there’s no sin­gle com­pany that of­fers the range of out­sourced ser­vices on the scale that it does.

First Data has had clients in South Africa since 1994, af­ter ac­quir­ing the com­pany that owned one of its soft­ware prod­ucts, Vi­sionPlus. But it opened of­fices here in 2003 and hav­ing looked closely at the lo­cal mar­ket, be­lieves there’s an op­por­tu­nity to greatly broaden its prod­uct and ser­vices of­fer­ing here.

The com­pany’s clients are mostly mer­chants (4,9m of them glob­ally) and card is­suers (around 1 900 glob­ally), and its range of of­fer­ings in­clude fa­cil­i­tat­ing mer­chants’ abil­ity to ac­cept credit, debit and other loy­alty cards, point-of­sale (PoS) de­vices, ATMs, the pro­cess­ing of cards for fi­nan­cial in­sti­tu­tions and other mer­chants, pro­cess­ing elec­tronic trans­ac­tions, en­sur­ing trans­ac­tions are se­cure at the PoS ter­mi­nal and at the ATM. It also ver­i­fies and guar­an­tees cheques.

First Data In­ter­na­tional is the new­est of the group’s three sub­sidiaries and has em­barked on a global ex­pan­sion drive over the past three years, which in­cluded ac­qui­si­tions in coun­tries rang­ing from Aus­tralia to Korea and joint ven­tures in China and Sin­ga­pore, among oth­ers.

South Africa is so far the only of­fice that it has in Africa – so the con­ti­nent is an open book for the com­pany.

Tokata said South African banks were in­creas­ingly look­ing to the rest of Africa, and First Data could go with them on to the con­ti­nent.

First Na­tional Bank is al­ready a client. First Data hopes to add more banks to the mix, lever­ag­ing on its ex­ist­ing re­la­tion­ships with in­ter­na­tional banks. It also has ex­ist­ing re­la­tion­ships with a num­ber of lo­cal re­tail­ers and ser­vices a bank in Mau­ri­tius.

First Data con­cedes that the South African ATM mar­ket is al­most sat­u­rated, with around 15 000 ma­chines and the mar­ket pre­dicted to grow to 18 000. So, it would con­cen­trate on other prod­ucts and re­lated ser­vices.

Tokata says South African re­tail­ers and other ser­vice providers are in­creas­ingly of­fer­ing fi­nan­cial ser­vices in part­ner­ship with the banks. This makes it in­creas­ingly im­por­tant for them to know more about their cus­tomers.

Also driv­ing the evo­lu­tion of the en­vi­ron­ment were reg­u­la­tory changes like the new Na­tional Credit Act, Basle 2 and EMV (the Euro­pay, MasterCard and Visa stan­dard).

First Data doesn’t only ser­vice the large fi­nan­cial in­sti­tu­tions. Tokata said for years there had been a view that small banks didn’t need com­plex sys­tems and so­lu­tions. Now, there was an un­der­stand­ing that be­ing small, they had a smaller bud­get on which to com­pete with the ma­jor in­sti­tu­tions, and so it was cru­cial to have com­plex sys­tems in place.

The busi­ness de­rives an­nu­ity rev­enue from com­pa­nies that use its soft­ware and pay main­te­nance fees, but it prefers to es­tab­lish out­sourc­ing re­la­tion­ships and would will­ingly in­vest in the nec­es­sary in­fra­struc­ture where there are long-term part­ner­ships in place, Zafi­rakis says.

Broad­cast­ing ser­vices. Este­vao Tokata

Not found the right deal. Ge­orge Zafi­rakis

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