First Data’s Plan for Card­con­nect

First Data’s $750 mil­lion deal for Card­con­nect will fast-track the com­pany’s on­go­ing trans­for­ma­tion, ac­cord­ing to one of its top ex­ec­u­tives.

ISO & Agent - - INSIDE 07/08.2017 - BY JOHN ADAMS

First Data’s ac­qui­si­tion of Card­con­nect fits into a a big­ger strat­egy of trans­for­ma­tion — and puts those plans on the fast track.

Pro­ces­sors are in­vest­ing bil­lions of dol­lars to build huge menus of tools for re­tail­ers that may no longer have the time to work with mul­ti­ple ven­dors. These trans­for­ma­tions are years in the mak­ing, and each in­vest­ment or ac­qui­si­tion has the po­ten­tial to dra­mat­i­cally change the com­pet­i­tive land­scape.

First Data’s planned $750 mil­lion ac­qui­si­tion of Card­con­nect, a deal it ex­pects to close in the third quar­ter, goes a step fur­ther by help­ing the pro­ces­sor ac­cel­er­ate a plan that was al­ready un­der­way.

With Card­con­nect, First Data can has­ten its abil­ity to in­te­grate with in­de­pen­dent soft­ware ven­dors that sell to the mer­chant in­dus­try, said Hi­man­shu Pa­tel, First Data’s CFO. The ac­qui­si­tion will move up First Data’s time­line in this area by about two years, he said.

“The en­vi­ron­ment is get­ting very com­plex, so the [busi­ness clients] don’t want just a sin­gle en­tity,” Pa­tel said. “They also want a com­pany that is ‘so­lu­tion­ing’ them rather than work­ing like a ven­dor.”

The broader strat­egy is to build to its own and third-party sys­tems for pay­ments pro­cess­ing and other ser­vices such as gift cards, check ac­cep­tance, debit, e-com­merce, mar­ket­ing, CRM, se­cu­rity and hard­ware.

“You can work with one very large trusted pay­ment com­pany that can in­te­grate all of these ac­tiv­i­ties, but in many ways also cus­tom­ize them,” Pa­tel said.

On the in­no­va­tion end, First Data re­cently en­tered into a part­ner­ship with Sil­i­con Val­ley Bank to lo­cate and en­cour­age early stage pay­ments tech­nol­ogy, part of a broad out­reach to de­vel­op­ers who build so­lu­tions for mer­chants through the use of pro­gram­ming tools and stream­lined cer­ti­fi­ca­tions for EMV and other tech­nol­ogy. An­other col­lab­o­ra­tion be­tween First Data and Fleet­cor will add tech­nol­ogy to power dig­i­tal gift­ing. And First Data’s ac­qui­si­tion of Ac­cu­lynk ear­lier this year bulked up its e-com­merce tech­nol­ogy.

On the scale side, First Data has part­nered with Jack Henry to ex­tend its card pro­cess­ing reach; and has en­tered a pact with Ali­pay to ex­pand us­age of First Data’s Clover point of sale sys­tem and

reach the mil­lions of Chi­nese res­i­dents who travel to First Data’s ge­o­graphic foot­print.

Card­con­nect will ease First Data’s abil­ity to con­nect pay­ment sys­tems with en­ter­prise re­source plan­ning sys­tems such as those from Or­a­cle and SAP, Pa­tel said. That will will help mer­chants pair pay­ments with gen­eral ledger, billing and CRM sys­tems with ex­tra se­cu­rity backed by First Data.

“A lot of mid-mar­ket and larger clients, par­tic­u­larly those in the B-to-b space have an in­creas­ing need to ac­cept card pay­ments,” Pa­tel said. “But CIOS are very wary of se­cu­rity risks of hav­ing card­holder data trav­el­ing around ERP sys­tems, so we can solve for the se­cu­rity risks.”

Card­con­nect adds about 67,000 mer­chant re­la­tion­ships, and an easier in­te­gra­tion be­tween First Data and Card­con­nect for dis­tri­bu­tion.

“This Card­con­nect deal is part of a con­tin­u­ing evo­lu­tion of ac­quir­ers to di­ver­sify away from com­mod­ity type pro­cess­ing,” said Ray­mond Pucci, an as­so­ciate direc­tor at Mer­ca­tor Ad­vi­sory Ser­vices. “So we’ll be see­ing more of this.”

Card­con­nect helps First Data set up a po­ten­tial “tri­fecta,” ac­cord­ing to Pucci. It al­lows First Data to scale up pro­cess­ing vol­ume for cost ef­fi­cien­cies, add more in­te­grated tech­nol­ogy so­lu­tions and busi­ness tools to cus­tomers

bring higher mar­gins, and make fur­ther in­roads into more en­ter­prise scale re­la­tion­ships ideal for cross-sell­ing across First Data’s port­fo­lio.

“The bonus is that Card­con­nect is al­ready a First Data part­ner, which will help smooth co­or­di­na­tion is­sues and chal­lenges that in­evitably ac­com­pany any deal like this,” Pucci said.

First Data also needs to com­pete against pro­ces­sors that are mak­ing their own in­vest­ments and ac­qui­si­tions to di­ver­sify their ser­vices. TSYS in 2016 spent $2.4 bil­lion to ac­quire Trans­first, and Van­tiv spent a to­tal of about $2 bil­lion in sep­a­rate deals to ac­quire Moneris and Mer­cury Pay­ments in re­cent years.

First Data wants to be­come “one very large trusted pay­ment com­pany” that can in­te­grate and cus­tom­ize mul­ti­ple mer­chant ac­tiv­i­ties, says Hi­man­shu Pa­tel, First Data’s CFO.

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