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BOON FOR BANKS? If the divestitures were sizable, "that would make the whole merger less appealing," says John Kraft, an analyst with D.A. Davidson. Still, many analysts believe Justice would welcome more competition to Visa and MasterCard.
While the lower transaction costs should appeal to merchants, banks might be a tougher sell. They share in the revenue from transaction processing, so reduced fees might not look so attractive. But First Data says banks will make more money by sticking with the new combination: Increased volume will compensate for lower fees, and the processor contends that its services will reduce fraud, which would be a boon to banks, even though they control the Visa association. First Data's Fote is confident that banks will ultimately go along: "It's good for the card-issuing banks because we'll be able to drive down [their] costs."
A couple of lawsuits remain to be resolved as well. First Data needs to win a legal dispute with Visa, which contends that all transactions involving Visa-branded cards must go through its network. The companies have countersued each other.
PICK AND CHOOSE. What could be more important to First Data's bottom line is the resolution of the legal battle of Wal-Mart v. Visa/MasterCard. Wal-Mart and 4 million other retailers allege that the associations overcharge for signature-based transactions. Today, the merchants must accept Visa/MasterCard's terms to get transactions completed -- or not accept any Visa or MasterCard cards. The civil trial is scheduled to begin Apr. 28.
If the merchants win, they'll be able to pick and choose which cards to accept. Then, PIN-based debit cards, the cornerstone of Concord's business and the cheapest way for a merchant to accept a card as well as the fastest way to collect money, will flourish, says Wayne Johnson, SunTrust Robinson Humphrey's director of electronic-payments equity research.
Visa would not comment for this story beyond issuing a statement: "By providing superior PIN and signature choices on Visa check cards, member financial institutions and merchants are able to ensure consumers continue to have a vast array of payment choices at the checkout counter -- and that's good for everyone." MasterCard did not return repeated calls seeking comment.
"ONE PLUS ONE EQUAL THREE." Shareholders of both First Data and Concord would have to approve the acquisition, but this doesn't seem problematic. Each business says most of its shareholders are institutional investors who should approve of the deal.
It's easy to see why: First Data stands to pocket heaps of extra revenues. Visa and MasterCard, which control 75% of the credit-card market, usually charge merchants 10 cents to 15 cents per transaction to allow for money transfer through their networks, says Johnson. In 2001, there were 22.1 billion credit-card transactions and 11.2 billion debit-card transactions made in the U.S. alone, according to STRH. Even if First Data grabbed 5% of the market, it would add hundreds of millions of dollars a year in revenues, predict analysts.
Both First Data and Concord are certainly optimistic. Says Concord co-CEO Bond Isaacson: "We felt this was a great opportunity for us to get a one plus one equal three instead of two -- and that's what you look for in a merger." That could be what investors will be looking for, too. Visa and MasterCard, look out.
Copyright 2003, Bloomberg L.P.
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